Abubakar vs.

Auditor General
1.ADMINISTRATIVE LAW; TREASURY WARRANTS ISSUED IN FAVOR OF
GOVERNMENT EMPLOYEES; APPROPRIATION FOR TREASURY WARRANT
ISSUED IN FAVOR OF AND HELD BY PRIVATE INDIVIDUALS. A treasury warrant
issued in favor of a public officer or employee but indorsed to and held by a private
individual, may not be redeemed out of an appropriation specifically for "treasury warrants
issued . . . in favor of and held in possession by private individuals."
2.ID.; ID.; NEGOTIABLE INSTRUMENTS LAW; PAYMENT OUT OF
PARTICULAR FUND, NOT UNCONDITIONAL. A treasury warrant "payable from the
appropriation for food administration," is actually an order for payment out of "a particular
fund," and is not unconditional, and does not fulfill one of the essential requirements of a
negotiable instrument. In the United States, government warrants for the payment of money
are not negotiable instruments nor commercial paper.
PNB vs. Manila Oil Refining
1.JUDGMENTS; JUDGMENTS BY CONFESSION; ORIGIN. The practice of
entering judgments in debt on warrants of attorney is ancient origin.
2.ID.; ID.; COMMON LAW PRACTICE. In the course of time a warrant of
attorney to confess judgment became a familiar common law security.
3.ID.; ID.; KINDS. At common law, there were two kinds of judgments by
confession; the one a judgment by cognovit actionem, and the other by confession relicta
verificatione.
4.ID.; ID.; ADVANTAGES. Judgments by confession as appeared at common law
were considered an amicable, easy, and cheap way settle and secure debts.
5.ID.; ID.; DISADVANTAGES. The recognition of such a form of obligation
would bring about a complete reorganization of commercial customs and practices, with
reference to short-term obligations. Instead of resulting to the advantage of commercial life
in the Philippines, judgment notes might be the source of abuse and oppression, and make the
involuntary parties thereto.
6.ID.; ID.; VALIDITY OF; IN THE UNITED STATES. A number of jurisdictions
in the United States have accepted the common law view of judgment by confession, while
still other jurisdictions have refused to sanction them.
7.ID.; ID.; ID.; ID. In the absence of statute, there is a conflict of authority as to
the validity of a warrant of attorney for the confession of judgment. The weight of opinion is
that unless authorized by statute, warrants of attorney to confess judgment are void, as
against public policy.
8.ID.; ID.; ID.; IN THE PHILIPPINE ISLANDS; STATUTORY PROVISIONS.
Neither the Code of Civil Procedure nor any other remedial statute expressly or tacitly
recognizes a confession of judgment commonly called a judgment note.
9.ID.; ID.; ID.; ID.; ID.; RIGHT TO A DAY IN COURT. The provisions of the
Code of Civil Procedure, in relation to constitutional safeguards relating to the right to take a
man's property only after a day in court and after due process of law, contemplate that all
defendants shall have opportunity to be heard.
10.ID.; ID.; ID.; ID.; ID.; COUNTERCLAIMS. The provisions of the Code of
Civil Procedure pertaining to counterclaims argue against judgment notes, especially as the
Code provides that in case the defendant or his assignee omits to set up a counterclaim, he
cannot afterwards maintain an action against the plaintiff therefor.
11.ID.; ID.; ID.; ID.; ID.; ARTICLE 1256, CIVIL CODE. At least one provision
of the substantive law, namely, that the validity and fulfillment of contracts cannot be left to
the will of one of the contracting parties (Civil Code, art. 1256), constitutes another
indication of fundamental legal purpose.
12.ID.; ID.; ID.; ID.; ID.; NEGOTIABLE INSTRUMENTS LAW (ACT No. 2031),
SECTION 5 (b) OF negotiable Instrument otherwise negotiable is not affected by a provision
which authorizes a confession of judgment if the instrument be not paid at maturity, cannot
be taken to sanction judgments by confession.
13.ID.; ID.; ID.; ID. Warrants of attorney to confess judgment are void as against
public policy, because they enlarge the field for fraud, because under these instruments the
promissor bargains away his right to a day in court, and because the effect of the instrument
is to strike down the right of appeal accorded by statute.
14.ID.; ID.; ID.; ID. Warrants of attorney to confess judgment are not authorized
nor contemplated by our law.
15.BILLS AND NOTES; JUDGMENT NOTE, VALIDITY OF. In the absence of
express legislative sanction, provisions in notes authorizing attorneys to appear and confess
judgments against makers should not be recognized in this jurisdiction by implicati on.
16.ID.; ID. A provision in a promissory note whereby in case the same is not paid
at maturity, the maker authorizes any attorney to appear and confess judgment thereon for the
principal amount, with interest, costs, and attorney's fees, and waives all errors, rights to
inquisition, and appeal, and all property exemptions, is not valid in this jurisdiction.
Equitable Banking v. IAC
CIVIL LAW; OBLIGATIONS AND CONTRACTS; INTERPRETATION OF CONTRACTS;
AMBIGUITY IN THE CONTRACT SHALL BE CONSTRUED AGAINST THE PARTY
WHO CAUSED IT. The subject check was equivocal and patently ambiguous. By making the
check read; "Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF
CASVILLE ENTERPRISES, INC." the payee ceased to be indicated with reasonable certainty in
contravention of Section 8 of the Negotiable Instruments Law. As worded, it could be accepted
as deposit to the account of the party named after the symbols "A/C," or payable to the Bank as
trustee, or as an agent, for Casville Enterprises, Inc., with the latter being the ultimate
beneficiary. That ambiguity is to be taken contra proferentem that is, construed against NELL
who caused the ambiguity and could have also avoided it by the exercise of a little more care. In
the last analysis, it was NELL's own acts, which put it into the power of Casals and Casville
Enterprises to perpetuate the fraud against it and, consequently, it must bear the loss (Blondeau,
et al., vs. Nano, et al., 61 Phil. 625 [1935], and other cases cited)
GSIS v. CA
1.NEGOTIABLE INSTRUMENTS LAW; ACCOMMODATION PARTY; DEFINED. Both
parties relied on the provisions of Section 29 of Act No. 2031, otherwise known as the
Negotiable Instruments Law, which provide that an accommodation party is one who has signed
an instrument as maker, drawer, acceptor of indorser without receiving value therefor, but is held
liable on the instrument to a holder for value although the latter knew him to be only an
accommodation party.
2.CIVIL LAW; OBLIGATIONS AND CONTRACTS; DEED OF MORTGAGE AND
PROMISSORY NOTES, NOT CONSIDERED NEGOTIABLE INSTRUMENTS. The
promissory note hereinbefore quoted, as well as the mortgage deeds subject of this case, are
clearly not negotiable instruments. These documents do not comply with the fourth requisite to
be considered as such under Section 1 of Act No. 2031 because they are neither payable to order
nor to bearer. The note is payable to a specified party, the GSIS. Absent the aforesaid requisite,
the provisions of Act No. 2031 would not apply, governance shall be afforded, instead, by the
provisions of the Civil Code and special laws on mortgages.
3.REMEDIAL LAW; PAROL EVIDENCE RULE; NOT APPLICABLE IN CASE AT BAR;
ADMISSIBILITY OF DOCUMENTARY EVIDENCE AS WELL AS THE TESTIMONY
PRESENTED, NOT OBJECTED TO IN THE COURT BELOW. The parol evidence rule
cannot be used by petitioner as a shield in this case for it is clear that there was no objection in
the court below regarding the admissibility of the testimony and documents that were presented
to prove that the private respondents signed the mortgage papers just to accommodate their co-
owners, the Lagasca spouses. Besides, the introduction of such evidence falls under the
exception to said rule, there being allegations in the complaint of private respondents in the court
below regarding the failure of the mortgage contracts to express the true agreement of the parties.
4.CIVIL LAW; MORTGAGE CONTRACTS; PARTY GIVING WRITTEN CONSENT TO
ACCOMMODATE A CO-OWNER OF MORTGAGED PROPERTY SOLIDARILY LIABLE.
Contrary to the holding of the respondent court, it cannot be said that private respondents are
without liability under the aforesaid mortgage contracts. The factual context of this case is
precisely what is contemplated in the last paragraph of Article 2085 of the Civil Code to the
effect that third persons who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property. So long as valid consent was given, the fact that the
loans were solely for the benefit of the Lagasca spouses would not invalidate the mortgage with
respect to private respondents' share in the property. In consenting thereto, even assuming that
private respondents may not be assuming liability for the debt, their share in the property shall
nevertheless secure and respond for the performance of the principal obligation. The parties to
the mortgage could not have intended that the same would apply only to the aliquot portion of
the Lagasca spouses in the property, otherwise the consent of the private respondents would not
have been required. The supposed requirement of prior demand on the private respondents would
not be in point here since the mortgage contracts created obligations with specific terms of the
compliance thereof. The facts further show that the private respondents expressly bound
themselves as solidary debtors in the promissory note.
5.REMEDIAL LAW; EXTRA-JUDICIAL FORECLOSURE OF MORTGAGE; PERSONAL
NOTICE TO MORTGAGOR, NOT NECESSARY. Coming now the extrajudicial foreclosure
effected by GSIS, We cannot agree with the ruling of respondent court that lack of notice to the
private respondents of the extrajudicial foreclosure sale impairs the validity thereof. In Bonnevie,
et al. vs. Court of Appeals, et al., the Court ruled that Act No. 3135, as amended, does not
require personal notice on the mortgagor, quoting the requirement on notice in such cases as
follows: "Section 3. Notice shall be given by posting notices of sale for not less than twenty days
in at least three public places of the municipality where the property is situated, and if such
property is worth more than four hundred pesos, such notice shall also be published once a week
for at least three consecutive weeks in a newspaper of general circulation in the municipality or
city." There is no showing that the foregoing requirement on notice was not complied with in the
foreclosure sale complained of.
Phil. Education v. Soriano
1.COMMERCIAL LAW; POSTAL LAW; NATURE OF POSTAL MONEY ORDERS. It is
not disputed that our postal statutes were patterned after similar statutes in force in the United
States. For this reason, ours are generally construed in accordance with the construction given in
the United States to their own postal statutes, in the absence of any special reason justifying a
departure from this policy or practice. The weight of authority in the United States is that postal
money orders are not negotiable instruments (Bolognesi vs. U.S., 189 Fed. 395; U.S. vs. Stock
Drawers National Bank, 30 Fed. 912), the reason behind this rule being that, in establ ishing and
operating a postal money order system, the government is not engaging in commercial
transactions but merely exercises a governmental power for the public benefit. It is to be noted in
this connection that some of the restrictions imposed upon money orders by postal laws and
regulations are inconsistent with the character of negotiable instruments. For instance, such laws
and regulations usually provide for not more than one endorsement; payment of money orders
may be withheld under a variety of circumstances (49 C. J. 1153).
2.ADMINISTRATIVE LAW; ID.; A LETTER OF THE DIRECTOR OF POSTS SETTING
CONDITIONS FOR THE REDEMPTION BY A BANK OF POSTAL MONEY ORDERS
RECEIVED BY IT FROM ITS DEPOSITORS IS NOT COVERED BY SEC. 79 (B) OF THE
REVISED ADMINISTRATIVE CODE, BUT BY SEC. 1190 OF THE SAME CODE. Of
particular application to the postal money order in question are the conditions laid down in the
letter of the Director of Posts of October 26, 1948 (Exhibit 3) to the Bank of America for the
redemption of postal money orders received by it from its depositors. Among others, the
condition is imposed that "in cases adverse claim, the money order or money orders involved
will be returned to you (the bank) and the corresponding amount will have to be refunded to t he
Postmaster, Manila, who reserves the right to deduct the value thereof from any amount due you
if such step is deemed necessary." . . .Moreover, not being a party to the understanding existing
between the postal officers, on the one hand, and the Bank of America, on the other, appellant
has no right to assail the terms and conditions thereof on the ground that the letter setting forth
the terms and conditions aforesaid is void because it was not issued by a Department Head in
accordance with Sec. 79 (B) of the Revised Administrative Code. In reality, however, said legal
provision does not apply to the letter in question because it does not provide for a department
regulation but merely sets down certain conditions upon the privilege granted to the Bank of
America to accept and pay postal money orders presented its depositors, instead of the same
being presented for payment at the Manila Post Office. Such being the case, it is clear that the
Director of Posts had ample authority to issue it pursuant to Sec. 1190 of the Revised
Administrative Code.
Salas v. CA
1.COMMERCIAL LAW; NEGOTIABLE INSTRUMENT; REQUISITES; SATISFIED IN
CASE AT BAR. The questioned promissory note shows that it is a negotiable instrument,
having complied with the requisites under the law as follows: [a] it is in writing and signed by
the maker Juanita Salas; [b] it contains an unconditional promise to pay the amount of
P58,138.20; [c] it is payable at a fixed or determinable future time which is "P1,614.95 monthly
for 36 months due and payable on the 21st day of each month starting March 21, 1980 thru and
inclusive of Feb. 21, 1983;" [d] it is payable to Violago Motor Sales Corporation, or order and as
such, [e] the drawee is named or indicated with certainty.
2.ID.; NEGOTIABLE AND NON-NEGOTIABLE INSTRUMENT, DISTINGUISHED. In
the case of Consolidated Plywood Industries Inc. v. IFC Leasing and Acceptance Corp., this
Court had the occasion to clearly distinguish between a negotiable and a non-negotiable
instrument. Among others, the instrument in order to be considered negotiable must contain the
so-called "words of negotiability i.e., must be payable to 'order' or 'bearer.'" Under Section 8
of the Negotiable Instruments Law, there are only two ways by which an instrument may be
made payable to order. There must always be a specified person named in the instrument and the
bill or note is to be paid to the person designated in the instrument or to any person to whom he
has indorsed and delivered the same. Without the words "or order" or "to the order of", the
instrument is payable only to the person designated therein and is therefore non-negotiable. Any
subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable
instrument, but will merely "step into the shoes" of the person designated in the instrument and
will thus be open to all defenses available against the latter.
3.ID.; NEGOTIABLE INSTRUMENTS; REQUISITES OF HOLDER IN DUE COURSE. A
holder in due course, having taken the instrument under the following conditions: [a] it is
complete and regular upon its face; [b] it became the holder thereof before it was overdue, and
without notice that it had previously been dishonored; [c] it took the same in good faith and for
value; and [d] when it was negotiated to Filinvest, the latter had no notice of any infirmity in the
instrument or defect in the title of VMS Corporation.
4.ID.; ID.; RIGHT OF A HOLDER IN DUE COURSE; APPLICABLE IN THE CASE AT
BAR. Respondent corporation holds the instrument free from any defect of title of prior
parties, and free from defenses available to prior parties among themselves, and may enforce
payment of the instrument for the full amount thereof. This being so, petitioner cannot set up
against respondent the defense of nullity of the contract of sale between her and VMS. Even
assuming for the sake of argument that there is an iota of truth in petitioner's allegation that there
was in fact deception made upon her in that the vehicle she purchased was different from that
actually delivered to her, this matter cannot be passed upon in the case before us, where the VMS
was never impleaded as a party.
Ang Tek Lian v. CA
1.CRIMINAL LAW; ESTAFA"; ISSUING CHECK WITH INSUFFICIENT BANK
DEPOSIT TO COVER THE SAME. One who issues a check payable to cash to
accomplish deceit and knows that at the time had no sufficient deposit with the bank to cover
the amount of the check and without informing the payee of such circumstances, is guilty of
estafa as provided by article 315, paragraph (d), subsection 2 of the Revised Penal Code.
2.NEGOTIABLE INSTRUMENTS; CHECK DRAWN PAYABLE TO THE
ORDER OF "CASH"; INDORSEMENT. A check payable to the order of "cash to the
person presenting it for payment without the drawer's indorsement.
Jimenez v. Bucoy
1.OBLIGATIONS AND CONTRACTS; LOANS; PAYMENT OF; APPLICATION
OF THE BALLANTYNE SCALE. Loans contracted and payable during the Japanese
occupation should be paid according to the Ballantyne schedule. However, if the loan was
expressly agreed to be payable after the war, peso-for-peso payment shall be ordered in
Philippine currency.
2.NEGOTIABLE INSTRUMENTS; PROMISSORY NOTES; WHEN
ACKNOWLEDGMENT BECOMES A PROMISE TO PAY. An acknowledgment of a
debt becomes a promise to pay by the addition of words implying a promise of payment,
such as, "payable," "payable on a given day," "payable on demand".
3.PLEADING AND PRACTICE; APPEAL; CHANGE OF THEORY NOT
PERMITTED. Where a party deliberately adopts a certain theory, and the case is tried and
decided upon that theory in the court below, he will not be permitted to change his theory on
appeal.
4.ATTORNEY'S FEES; REFUSAL TO SATISFY PLAINTIFF'S CLAIM; AS
GROUND FOR AWARD. The defendant did not deny his indebtedness but merely
pleaded for adjustment of payment under the Ballantyne schedule. Hence, he could not be
held to have "acted in gross and evident bad faith" to justify the award of attorney's fees.

Pacheco v. CA
SYNOPSIS
In 1989, petitioners spouses Ernesto T. Pacheco and Virginia O. Pacheco obtained a series of
loans from Mrs. Luz Vicencio which amounted to P85,000.00 at an interest of 10%. Instead of
merely requiring a note of indebtedness, her husband Mr. Romualdo Vicencio, a former Judge,
required petitioners to issue an undated check as an evidence of the loan, which allegedly will
not be presented to the bank. Despite being informed by petitioners that their bank account had
no funds, Mrs. Vicencio insisted that they issue the checks which according to her, was only a
formality. Thus, Virginia issued six undated RCBC checks. When the remaining balance of
P15,000.00 on the loan became due and demandable, petitioners were not able to pay despite
demands to do so. On August 3, 1992, Mrs. Vicencio and her daughter persuaded Virginia to
place the date August 15, 1992 on two checks. Despite being informed by Virginia that their
account with RCBC had been closed as early as August 17, 1989, Mrs. Vicencio and her
daughter insisted that she place a date on the checks allegedly so that it will become an evidence
of their indebtedness. The former reluctantly wrote the date on the checks for fear that she might
not be able to obtain future loans from Mrs. Vicencio. Later, petitioners were surprised to receive
a demand letter from Mr. Vicencio informing them that the checks when presented for payment
on August 25, 1992 were dishonored by the bank due to "Account Closed". Consequently, upon
the complaint of Mr. Vicencio, two informations for estafa defined in Article 315 (2)(d) of the
Revised Penal Code were filed against petitioners. Petitioners were tried and sentenced to suffer
imprisonment and ordered to indemnify the complainant in the total amount of P25,000.00. On
appeal, the Court of Appeals affirmed the decision of the court a quo.
In this petition, the Court ruled that a check has the character of negotiability and at the same
time it constitutes an evidence of indebtedness. By mutual agreement of the parties, the
negotiable character of a check may be waived and the instrument may be treated simply as
proof of an obligation. There cannot be deceit on the part of the obligor, petitioners herein,
because they agreed with the obligee at the time of the issuance and postdating of the checks that
the same shall not be encashed or presented to the banks. As per assurance of the lender, the
checks are nothing but evidence of the loan or security thereof in lieu of and for the same
purpose as a promissory note. By their own covenant, therefore, the checks became mere
evidence of indebtedness. It has been ruled that a drawer who issues a check as security or
evidence of investment is not liable for estafa.
Petitioners were ACQUITTED.
SYLLABUS
1.CRIMINAL LAW; ESTAFA; POSTDATING OR ISSUING BOUNCING CHECK IN
PAYMENT OF AN OBLIGATION; ELEMENTS. The essential elements in order to sustain
a conviction under the above paragraph are: 1. that the offender postdated or issued a check in
payment of an obligation contracted at the time the check was issued; 2. that such postdating or
issuing a check was done when the offender had no funds in the bank, or his funds deposited
therein were not sufficient to cover the amount of the check; 3. Deceit or damage to the payee
thereof.
2.MERCANTILE LAW; NEGOTIABLE INSTRUMENTS LAW; NEGOTIABILITY OF
CHECK CAN BE WAIVED. A check has the character of negotiability and at the same time
it constitutes an evidence of indebtedness. By mutual agreement of the parties, the negotiable
character of a check may be waived and the instrument may be treated simply as proof of an
obligation.
3.CRIMINAL LAW; ESTAFA; NOT COMMITTED BY DRAWER WHO ISSUED CHECKS
AS EVIDENCE OF INDEBTEDNESS. There cannot be deceit on the part of the obligor,
petitioners herein, because they agreed with the obligee at the time of the issuance and postdating
of the checks that the same shall not be encashed or presented to the banks. As per assurance of
the lender, the checks are nothing but evidence of the loan or security thereof in lieu of and for
the same purpose as a promissory note. By their own covenant, therefore, the checks became
mere evidence of indebtedness. It has been ruled that a drawer who issues a check as security or
evidence of investment is not liable for estafa.
4.ID.; ID.; ID.; APPLIED IN CASE AT BAR. Following complainant's theory that he would
not have sold the jewelries had not petitioners issued "postdated" checks, still no estafa can be
imputed to petitioners. It is clear that the checks were not intended for encashment with the bank,
but were delivered as mere security for the payment of the loan and under an agreement that the
checks would be redeemed with cash as they fell due. Hence, the checks were not intended by
the parties to be modes of payment but only as promissory notes. Since complainant and his wife
were well aware of the fact, they cannot now complain there was deception on the part of
petitioners. Awareness by the complainant of the fictitious nature of the pretense cannot give rise
to estafa by means of deceit. When the payee was informed by the drawer that the checks are not
covered by adequate funds it does not give rise to bad faith or estafa. cHCaIE
5.ID.; ID.; DECEIT; NOT PRESENT IN CASE AT BAR. Mrs. Vicencio could not have been
deceived nor defrauded by petitioners in order to obtain the loans because she was informed that
they no longer have funds in their RCBC accounts. In 1992, when the Vicencio family asked
Virginia to place a date on the check, the latter again informed Mrs. Vicencio that their account
with RCBC was already closed as early as August 1989. With the assurance, however, that the
check will only stand as a firm evidence of indebtedness, Virginia placed a date on the check.
Under these circumstances, Mrs. Vicencio cannot claim that she was deceived or defrauded by
petitioners in obtaining the loan. In the absence of the essential element of deceit, no estafa was
committed by petitioners.
6.MERCANTILE LAW; NEGOTIABLE INSTRUMENTS LAW; PERSON IN POSSESSION
OF CHECK HAS PRIMA FACIE AUTHORITY TO COMPLETE IT. As holder of the check,
he could have inserted the date pursuant to Section 13 of the Negotiable Instrument Law (NIL).
Moreover, as stated in Section 14 thereof, complainant, as the person in possession of the check,
has prima facie authority to complete it by filling up the blanks therein. Besides, pursuant to
Section 12 of the same law, a negotiable instrument is not rendered invalid by reason only that it
is antedated or postdated.
7.CRIMINAL LAW; ESTAFA; NOT COMMITTED BY DRAWER WHO INFORMED THE
COMPLAINANT AT THE TIME OF ISSUANCE OF CHECK THAT IT HAS NO
SUFFICIENT FUND IN BANK. Petitioners openly disclosed and never hid the fact that they
no longer have funds in the bank as their bank account was already closed. Knowledge by the
complainant that the drawer does not have sufficient funds in the bank at the time it was issued to
him does not give rise to a case for estafa through bouncing checks.
8.MERCANTILE LAW; NEGOTIABLE INSTRUMENTS LAW; CHECK MUST BE
PRESENTED WITHIN A REASONABLE TIME FROM ISSUE. A check must be presented
within a reasonable time from issue. By current banking practice, a check becomes stale after
more than six (6) months. In fact a check long overdue for more than two and one-half years is
considered stale.
9.REMEDIAL LAW; EVIDENCE; CREDIBILITY OF WITNESSES; PERSONS ARE
PRESUMED TO HAVE TAKEN CARE OF THEIR BUSINESS. Complainant's allegations
that the two subject checks were issued in 1992 as payment for the jewelry he allegedly sold to
petitioners is belied by the evidence on record. First, complainant is not engaged in the sale of
jewelry, Neither are petitioners. If the pieces of jewelry were important to complainant
considering that they were with him for more than twenty-five years already, he would not have
easily parted with them in consideration for unfunded personal checks in favor of persons whose
means of living or source of income were known to him. Applicable here is the legal precept that
persons are presumed to have taken care of their business.
10.ID.; ID.; ID.; EVIDENCE TO BE BELIEVED MUST NOT ONLY PROCEED FROM THE
MOUTH OF CREDIBLE WITNESS BUT MUST BE CREDIBLE IN ITSELF. The rule that
factual findings of the trial court bind this court is not absolute but admits of exceptions such as
when the conclusion is a finding grounded on speculation, surmise, and conjecture and when the
findings of the lower court is premised on the absence of evidence and is contradicted by the
evidence on record. Based on the foregoing discussions, this Court is constrained to depart from
the general rule. Equally applicable is what Vice-Chancellor Van Fleet once said. "Evidence to
be believed must not only proceed from the mouth of a credible witness but must be credible in
itself such as the common experience and observation of mankind can approve as probable
under the circumstances. We have no test of the truth of human testimony; except its conformity
to our knowledge, observation and experience. Whatever is repugnant to these belongs to the
miraculous, and outside of judicial cognizance."
11.ID.; ID.; ID.; ID.; NOT PRESENT IN CASE AT BAR. Petitioner's bank account with
RCBC was opened on March 26, 1987 and was closed on April 17, 1989, during the span of
which they were issued 10 check booklets with the last booklet issued on April 6, 1989. This last
booklet contains 50 checks consecutively numbered from 101751 to 101800. The two subject
checks came from this booklet. All the checks in this booklet were issued in the year 1989
including the two subject checks, so that the complainants' theory that the jewelry were sold in
1992 cannot be believed.

12.ID.; CRIMINAL PROCEDURE; JUDGMENT; ACCUSED ACQUITTED OF CRIMINAL
CHARGE CAN BE HELD CIVILLY LIABLE IN THE SAME CASE; CASE AT BAR.
Petitioners, however, are not without liability. An accused acquitted of a criminal charge may
nevertheless be held civilly liable in the same case where the facts established by the evidence so
warrant. Based on the records, they still have an outstanding obligation of P15,000.00 in favor of
Mrs. Vicencio. There was mention that the loan shall earn interests. However, an agreement as to
payment of interest must be in writing, otherwise it cannot be valid, although there was actual
payment of interests by virtue of the advance deductions from the loan. Once the judgment
becomes final and executory, the amount due is deemed equivalent to a forbearance of credit
during the interim period from the finality of judgment until full payment, in which case it shall
earn legal interest at the rate of twelve per cent (12%) per annum pursuant to Central Bank (CB)
Circular No. 416. TICAcD
De La Victoria vs. Burgos
1.REMEDIAL LAW; PROVISIONAL REMEDIES; ATTACHMENT; GARNISHMENT;
DEFINED. Garnishment is considered as a species of attachment for reaching credits
belonging to the judgment debtor owing to him from a stranger to the litigation. Emphasis is laid
on the phrase "belonging to the judgment debtor" since it is the focal point in resolving the issues
raised.
2.ID.; ID.; ID.; ID.; RULE IN CASE OF SALARY CHECK OF GOVERNMENT OFFICER
OR EMPLOYEE. As Assistant City Fiscal, the source of the salary of Mabanto Jr., is public
funds. He receives his compensation in the form of checks from the Department of Justice
through petitioners City Fiscal of Mandaue City and head of office. Under Sec. 16 of the
Negotiable Instruments Law, every contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of giving effect thereto. As ordinarily
understood, delivery means the transfer of the possession of the instrument by the maker or
drawer with intent to transfer title to the payee and recognize him as the holder thereof.
According to the trial court, the checks of Mabanto, Jr., were already released by the Department
of Justice duly signed by the officer concerned through petitioner and upon service of the writ of
garnishment by the sheriff petitioner was under obligation to hold them for the judgment
creditor. It recognized the role of petitioner as custodian of the checks. At the same time
however it considered the checks as no longer government funds and presumed delivered to the
payee based on the last sentence of Sec. 16 of the Negotiable Instruments Law which states:
"And where the instrument is no longer in the possession of a party whose signature appears
thereon, a valid and intentional delivery by him is presumed." Yet, the presumption is not
conclusive because the last portion of the provision says "until the contrary is proved." However
this phrase was deleted by the trial court for no apparent reason. Proof to the contrary is its own
finding that the checks were in the custody of petitioner. Inasmuch as said checks had not yet
been delivered to Mabanto, Jr., they did not belong to him and still had the character of public
funds. In Tiro v. Hontanosas (No. L-32312, 25 November 1983, 125 SCRA 697) we ruled that
The salary check of a government officer or employee such as a teacher does not belong to
him before it is physically delivered to him. Until that time the check belongs to the government.
Accordingly, before there is actual delivery of the check, the payee has no power over it; he
cannot assign it without the consent of the Government. As a necessary consequence of being
public fund, the checks may not be garnished to satisfy the judgment. The rationale behind this
doctrine is obvious consideration of public policy. The Court succinctly stated in Commissioner
of Public Highways v. San Diego (No. L 30098, 18 February 1970, 31 SCRA 616) that The
functions and public services rendered by the State cannot be allowed to be paralyzed or
disrupted by the diversion of public funds from their legitimate and specific objects, as
appropriated by law.
3.ID.; ID.; ID.; ID.; GENERALLY, GARNISHEE NEED NOT INQUIRE OR JUDGE FOR
ITSELF WHETHER OR NOT THE ORDER FOR THE ADVANCE EXECUTION OF A
JUDGMENT IS VALID; EXCEPTION. In denying petitioner's motion for reconsideration,
the trial court expressed the additional ratiocination that it was not the duty of the garnishee to
inquire or judge for himself whether the issuance of the order of execution, the writ of execution,
and the notice of garnishment was justified, citing our ruling in Philippine Commercial
Industrial Bank v. Court of Appeals. Our precise ruling in that case was that "[I]t is not
incumbent upon the garnishee to inquire or to judge for itself whether or not the order for the
advance execution of a judgment is valid." But that is invoking only the general rule. We have
also established therein the compelling reasons, as exceptions thereto, which were not taken into
account by the trial court e.g., a defect on the face of the writ or actual knowledge by the
garnishee of lack of entitlement on the part of the garnisher. It is worth to note that the ruling
referred to the validity of advance execution of judgments, but a careful scrutiny of that case and
similar cases reveals that it was applicable to a notice of garnishment as well. In the case at
bench, it was incumbent upon petitioner to inquire into the validity of the notice of garnishment
as he had actual knowledge of the non-entitlement of private respondent to the checks in
question. Consequently, we find no difficulty concluding that the trial court exceeded its
jurisdiction in issuing the notice of garnishment concerning the salary checks of Mabanto, Jr., in
the possession of Petitioner.
DAVIDE, JR., J., separate opinion:
REMEDIAL LAW; PROVISIONAL REMEDIES; ATTACHMENT; GARNISHMENT; FOR
VALIDITY THEREOF IN CASE OF SALARY CHECKS DUE TO GOVERNMENT
EMPLOYEES, TIME AND NOTICE THEREOF MUST BE CONSIDERED. Justice Davide,
Jr. respectfully submits that if these salary and RATA checks corresponded, respectively, to a
payroll period and to a month which had already lapsed at the time the notice of garnishment was
served, the garnishment would be valid, as the checks would then cease to be property of the
Government and would become property of Mabanto. Upon the expiration of such period and
month, the sums indicated therein were deemed automatically segregated from the budgetary
allocations for the Department of Justice under the General Appropriations Act. Justice Davide,
Jr. therefore votes to grant the petition only if the salary and RATA checks garnished
corresponds to an unexpired payroll period and RATA month, respectively.
Development Bank of Rizal v. Sima Wei
1.REMEDIAL LAW; CAUSE OF ACTION; DEFINITION AND ESSENTIAL ELEMENTS.
A cause of action is defined as an act or omission of one party in violation of the legal right or
rights of another. The essential elements are: (1) legal right of the plaintiff; (2) correlative
obligation of the defendant; and (3) an act or omission of the defendant in violation of said legal
right.
2.ID.; APPEAL; PARTY CANNOT CHANGE HIS THEORY ON APPEAL; REASON. In
the original complaint, petitioner Bank, as plaintiff, sued respondent Sima Wei on the promissory
note, and the alternative defendants, including Sima Wei, on the two checks. On appeal from the
orders of dismissal of the Regional Trial Court, petitioner Bank alleged that its cause of action
was not based on collecting the sum of money evidenced by the negotiable instruments stated but
on quasi-delict a claim for damages on the ground of fraudulent acts and evident bad faith of
the alternative respondents. This was clearly an attempt by the petitioner Bank to change not
only the theory of its case but the basis of his cause of action. It is well-settled that a party cannot
change his theory on appeal, as this would in effect deprive the other party of his day in court.
3.NEGOTIABLE INSTRUMENTS LAW; CHECKS; MUST BE DELIVERED TO THE
PAYEE TO GIVE EFFECT THERETO. A negotiable instrument, of which a check is, is not
only a written evidence of a contract right but is also a species of property. Just as a deed to a
piece of land must be delivered in order to convey title to the grantee, so must a negotiable
instrument be delivered to the payee in order to evidence its existence as a binding contract.
Section 16 of the Negotiable Instruments Law, which governs checks, provides in part: "Every
contract on a negotiable instrument is incomplete and revocable until delivery of the instrument
for the purpose of giving effect thereto. . . ." The payee of a negotiable instrument acquires no
interest with respect thereto until its delivery to him. Delivery of an instrument means transfer of
possession, actual or constructive, from one person to another. Without the initial delivery of the
instrument from the drawer to the payee, there can be no liability on the instrument. Moreover,
such delivery must be intended to give effect to the instrument.
Manuel Lim v. CA
1.CRIMINAL LAW; BATAS PAMBANSA BLG. 22; BOUNCING CHECKS; ELEMENTS.
Section 1, par. 1, of B.P. Blg. 22 punishes "[a]ny person who makes or draws and issues any
check to apply on account or for value, knowing at the time of issue that he does not have
sufficient funds in or credit with the drawee bank for the payment of such check in full upon its
presentment, which check is subsequently dishonored by the drawee bank for insufficiency of
funds or credit or would have been dishonored for the same reason had not the drawer, without
any valid reason, ordered the bank to stop payment . . ." The gravamen of the offense is
knowingly issuing a worthless check. Thus, a fundamental element is knowledge on the part of
the drawer of the insufficiency of his funds in or credit with the drawee bank for the payment of
such check in full upon presentment. Another essential element is subsequent dishonor of the
check by the drawee bank for insufficiency of funds or credit or would have been dishonored for
the same reason had not the drawer, without any valid reason, ordered the bank to stop payment.
2.REMEDIAL LAW; CRIMINAL PROCEDURE; VENUE, A VITAL INGREDIENT OF
JURISDICTION. It is settled that venue in criminal cases is a vital ingredient of jurisdiction.
(Sec. 14, par. [a], Rule 110 of the Revised Rules of Court, Sec. 15, par. [a], Rule 110 of the 1985
Rules on Criminal Procedure)
3.ID.; ID.; ID.; RULE IN TRANSITORY CRIMES. If all the acts material and essential to
the crime and requisite of its consummation occurred in one municipality or territory, t he court
therein has the sole jurisdiction to try the case. There are certain crimes in which some acts
material and essential to the crimes and requisite to their consummation occur in one
municipality or territory and some in another, in which event, the court of either has jurisdiction
to try the cases, it being understood that the first court taking cognizance of the case excludes the
other. These are the so-called transitory or continuing crimes under which violation of B.P. Blg.
22 is categorized. In other words, a person charged with a transitory crime may be validly tried
in any municipality or territory where the offense was in part committed.
4.ID.; ID.; ID.; CASE AT BAR. In determining proper venue in these cases, the following
acts material and essential to each crime and requisite to its consummation must be considered:
(a) the seven (7) checks were issued to LINTON at its place of business in Balut, Navotas; (b)
they were delivered to LINTON at the same place; (c) they were dishonored in Kalookan City;
and (d) petitioners had knowledge of the insufficiency of their funds in SOLIDBANK at the time
the checks were issued. Since there is no dispute that the checks were dishonored in Kaloocan
City, it is no longer necessary to discuss where the checks were dishonored. Consequently, venue
or jurisdiction lies either in the Regional Trial Court of Kaloocan City or Malabon. Moreover,
we ruled in the same Grospe and Manzanilla cases as reiterated in Lim v. Rodrigo that venue or
jurisdiction is determined by the allegations in the Information. The Informations in the cases
under consideration allege that the offenses were committed in the Municipality of Navotas
which is controlling and sufficient to vest jurisdiction upon the Regional Trial Court of Malabon.
5.COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; "ISSUE," CONSTRUED.
Under Sec. 191 of the Negotiable Instruments Law the term "issue" means the first delivery of
the instrument complete in form to a person who takes it as a holder.
6.ID.; ID.; "HOLDER," CONSTRUED. On the other hand, the term "holder" refers to the
payee or indorsee of a bill or note who is in possession of it or the bearer thereof.
7.ID.; ID.; RECEIPT OF CHECKS BY A COLLECTOR, NOT THE ISSUANCE AND
DELIVERY CONTEMPLATED BY LAW. Although LINTON sent a collector who received
the checks from petitioners at their place of business in Kalookan City, they were actually issued
and delivered to LINTON at its place of business in Balut, Navotas. The receipt of the checks by
the collector of LINTON is not the issuance and delivery to the payee in contemplation of law.
The collector was not the person who could take the checks as a holder, i.e. as a payee or
indorsee thereof, with the intent to transfer title thereto. Neither could the collector be deemed an
agent of LINTON with respect to the checks because he was a mere employee.
8.CRIMINAL LAW; BATAS PAMBANSA BLG. 22; PRIMA FACIE EVIDENCE OF
KNOWLEDGE OF INSUFFICIENT FUNDS; NOT OVERCOME BY FAILURE OF PARTY
TO PAY THE AMOUNTS DUE ON THE CHECKS. Section 2 of B.P. Blg. 22 establishes a
prima facie evidence of knowledge of insufficient funds. The prima facie evidence has not been
overcome by petitioners in the cases before us because they did not pay LINTON the amounts
due on the checks; neither did they make arrangements for payment in full by the drawee bank
within five (5) banking days after receiving notices that the checks had not been paid by the
drawee bank. In People v. Grospe citing People v. Manzanilla we held that " . . . knowledge on
the part of the maker or drawer of the check of the insufficiency of his funds is by itself a
continuing eventuality, whether the accused be within one territory or another."
People v. Romero
SYNOPSIS
Appellants Romero and Rodriguez, General Manager and Operation Manager, respectively, of
Surigao San Andres Industrial Development Corporation (SAIDECOR), were charged with
widescale estafa and violation of Batas Pambansa Bilang 22 based on a complaint filed by
Ernesto A. Ruiz, a radio commentator. SAIDECOR, engaged in solicitation of funds and
investments from the public, guaranteed an 800% return on investment within fifteen (15) or
twenty-one (21) days. Appellants issued postdated a check in the amount of One Million Two
Hundred Thousand Pesos (P1,200,000.00) Philippine Currency, but when presented, was
dishonored for insufficiency of funds. The trial court, after joint trial, acquitted appellants of
violation of B.P. 22 but convicted them of Estafa for widescale swindling. The trial court held
that the crime was committed by a syndicate and sentenced appellants to life imprisonment.
Hence, this appeal. During the pendency of the appeal, appellant Rodriguez died. cdasia
The appealed decision was affirmed by the Supreme Court but modified the penalty to an
indeterminate one for failure of the prosecution to establish that the corporation was a syndicate
as defined under the law. The Court found that deception was employed on Ruiz by appellants
and entered into a Ponzi scheme where appellant fraudulently represented that Ruiz investment
would have an 800% return in 15 or 21 days. It is sometimes called a pyramid scheme because a
broader base of gullible investors must support the structure as time passes.
Death of the accused pending appeal extinguishes his criminal liability as well as the civil
liability ex delicto. However, the claim for civil liability survives if based on a source of
obligation other than delict.
SYLLABUS
1.CRIMINAL LAW; ESTAFA; ELEMENTS. Under paragraph 2 (d) of Article 315, as
amended by R.A. 4885, the elements of estafa are: (1) a check was postdated or issued in
payment of an obligation contracted at the time it was issued; (2) lack or insufficiency of funds
to cover the check; and (3) damage to the payee thereof.
2.ID.; ID.; ID.; CASE AT BAR. In this case, there was deception when accused fraudulently
represented to complainant that his investment with the corporation would have an 800% return
in 15 or 21 days. Upon receipt of the money, accused-appellant Martin Romero issued a
postdated check. Although accused-appellant contends that sufficient funds were deposited in the
bank when the check was issued, he presented no officer of the bank to substantiate the
contention. The check was dishonored when presented for payment, and the check return slip
submitted in evidence indicated that it was dishonored due to insufficiency of funds. Even
assuming for the sake of argument that the check was dishonored without any fraudulent
pretense or fraudulent act of the drawer, the latter's failure to cover the amount within three days
after notice creates a rebuttable presumption of fraud. Admittedly (1) the check was dishonored
for insufficiency of funds as evidenced by the check return slip; (2) complainant notified accused
of the dishonor; and (3) accused failed to make good the check within three days. Presumption of
deceit remained since accused failed to prove otherwise. Complainant sustained damage in the
amount of P150,000.00.
3.MERCANTILE LAW; NEGOTIABLE INSTRUMENTS LAW; RULE THAT AMOUNT IN
WORDS PREVAIL OVER AMOUNT IN FIGURE, NOT APPLICABLE TO CASE AT BAR.
Accused-appellant relies on the fact that there was a discrepancy between the amount in
words and the amount in figures in the check that was dishonored. The amount in words was
P1,000,200.00, while the amount in figures was P1,200,000.00. It is admitted that the
corporation had in the bank P1,144,760.00 on September 28, 1989, and P1,124,307.14 on April
2, 1990. The check was presented for payment on October 5, 1989. The rule in the Negotiable
Instruments Law is that when there is ambiguity in the amount in words and the amount in
figures, it would be the amount in words that would prevail. However, this rule of interpretation
finds no application in the case. The agreement was perfectly clear that at the end of twenty one
(21) days, the investment of P150,000.00 would become P1,200,000.00. Even if the trial court
admitted the stipulation of facts, it would not be favorable to accused-appellant.
4.CRIMINAL LAW; SWINDLING OR ESTAFA; PONZI OR PYRAMID SCHEME,
CONSTRUED. The factual narration in this case established a kind of Ponzi scheme. This is
"an investment swindle in which high profits are promised from fictitious sources and early
investors are paid off with funds raised from later ones." It is sometimes called a pyramid
scheme because a broader base of gullible investors must support the structure as time passes. In
the recent case of People vs. Priscilla Balasa, this Court held that a transaction similar to the
case at hand is not an investment strategy but a gullibility scheme, which works only as long as
there is an ever increasing number of new investors joining the scheme. It is difficult to sustain
over a long period of time because the operator needs an ever larger pool of later investors to
continue paying the promised profits to early investors. The idea behind this type of swindle is
that the "con-man" collects his money from his second or third round of investors and then
absconds before anyone else shows up to collect. Necessarily, these schemes only last weeks, or
months at most, just like what happened in this case.
5.ID.; DEATH OF ACCUSED PENDING APPEAL; EXTINGUISHES CRIMINAL AND
CIVIL LIABILITIES. The Court notes that one of the accused-appellants, Ernesto Rodriguez,
died pending appeal. Pursuant to the doctrine established in People vs. Bayotas, the death of the
accused pending appeal of his conviction extinguishes his criminal liability as well as the civil
liability ex delicto. The criminal action is extinguished inasmuch as there is no longer a
defendant to stand as the accused, the civil action instituted therein for recovery of civil liability
ex delicto is ipso facto extinguished, grounded as it is on the criminal case. Corollarily, the claim
for civil liability survives notwithstanding the death of the accused, if the same may also be
predicated on a source of obligation other than delict. SDEHIa
6.ID.; SWINDLING OR ESTAFA; PENALTY WHEN NOT COMMITTED BY A
SYNDICATE. The trial court considered the swindling involved in this case as having been
committed by a syndicate and sentenced the accused to life imprisonment based on the
provisions of Presidential Decree 1689, which increased the penalty for certain forms of
swindling or estafa. However, the prosecution failed to clearly establish that the corporation was
a syndicate, as defined under the law. The penalty of life imprisonment cannot be imposed. What
would be applicable in the present case is the second paragraph of Presidential Decree No. 1689,
Section 1.
7.ID.; ID.; ID.; CASE AT BAR. Article 77 of the Revised Penal Code on complex penalties
provides that "whenever the penalty prescribed does not have one of the forms specially
provided for in this Code, the periods shall be distributed, applying by analogy the prescribed
rules," that is, those in Articles 61 and 76. Hence, where as in this case, the penalty provided by
Section 1 of Presidential Decree. No. 1689 for estafa under Articles 315 and 316 of the Code is
reclusion temporal to reclusion perpetua, the minimum period thereof is twelve (12) years and
one (1) day to sixteen (16) years of reclusion temporal; the medium period is sixteen (16) years
and one (1) day to twenty (20) years of reclusion temporal; and the maximum period is reclusion
perpetua. In the case at bar, no mitigating or aggravating circumstance has been alleged or
proved. Applying the rules in the Revised Penal Code for graduating penalties by degrees to
determine the proper period, the penalty for the offense of estafa under Article 315, 2(d) as
amended by P.D. 1689 involving the amount of P150,000.00 is the medium of the period of the
complex penalty in said Section 1, that is, sixteen (16) years and one (1) day to twenty (20)
years. This penalty, being that which is to be actually imposed in accordance with the rules
therefor and not merely imposable as a general prescription under the law, shall be the maximum
range of the indeterminate sentence. The minimum thereof shall be taken, as aforesaid, from any
period of the penalty next lower in degree, which is, prision mayor.
8.CIVIL LAW; DAMAGES; MORAL AND EXEMPLARY DAMAGES IN ESTAFA.. To
enable the complainant to obtain means, diversion or amusements that will serve to alleviate the
moral sufferings undergone by him, by reason of the failure of the accused to return his money,
moral damages are imposed against accused-appellant Martin L. Romero in the amount of
twenty thousand pesos (P20,000.00). To serve as an example for the public good, exemplary
damages are awarded against him in the amount of fifteen thousand pesos (P15,000.00).
PNB v. Concepcion Mining
1.BILLS, NOTES AND CHECKS; NEGOTIABLE INSTRUMENT; SIGNED BY TWO OR MORE PERSONS;
LIABILITY. Under Section 17 (g) of the Negotiable Instrument Law and Art. 1216 of the Civil
Code, where the promissory note was executed jointly and severally by two or more persons,
the payee of the promissory note had the right to hold any one or any two of the signers of the
promissory note responsible for the payment of the amount of the note.
Republic Planters Bank v. CA
1.MERCANTILE LAW; NEGOTIABLE INSTRUMENTS LAW; PROMISSORY NOTES; CO-
MAKER; CANNOT ESCAPE LIABILITY ARISING THEREFROM; CASE AT BAR.
Under the Negotiable Instruments Law, persons who write their names on the face of promissory
notes are makers and are liable as such. By signing the notes, the maker promises to pay to the
order of the payee or any holder according to the tenor thereof. Based on the above provisions of
law, there is no denying that private respondent Fermin Canlas is one of the co-makers of the
promissory notes. As such, he cannot escape liability arising therefrom.
2.ID.; ID.; ID.; LIABILITY THERETO IS SOLIDARY WHERE SINGULAR PRONOUN ARE
USED IN THE INSTRUMENT. Where an instrument containing the words "I promise to
pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon.
An instrument which begins with "I", "We", or "Either of us" promise to pay, when signed by
two or more persons, makes them solidarily liable. The fact that the singular pronoun is used
indicates that the promise is individual as to each other; meaning that each of the co-signers is
deemed to have made an independent singular promise to pay the notes in full.
3.ID.; ID.; ID.; JOINT AND SEVERAL OBLIGATION, CONSTRUED; CASE AT BAR. In
the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer and
certain, without reason for ambiguity, by the presence of the phrase "Joint and several" as
describing the unconditional promise to pay to the order of Republic Planters Bank. A joint and
several note is one in which the makers bind themselves both jointly and individually to the
payee so that all may be sued together for its enforcement, or the creditor may select one or more
as the object of the suit. A joint and several obligation in common law corresponds to a civil law
solidary obligation; that is, one of several debtors bound in such wise that each is liable for the
entire amount, and not merely for his proportionate share. By making a joint and several promise
to pay to the order of Republic Planters Bank, private respondent Fermin Canlas assumed the
solidary liability of a debtor and the payee may choose to enforce the notes against him alone or
jointly with Yamaguchi and Pinch Manufacturing Corporation as solidary debtors.
4.ID.; ID.; ID.; LIABILITY THERETO NOT AFFECTED BY CHANGE OF CORPORATE
NAME; REASON. Finally, the respondent Court made a grave error in holding that an
amendment in a corporation's Articles of Incorporation effecting a change of corporate name, in
this case from Worldwide Garment Manufacturing, Inc. to Pinch Manufacturing Corporation,
extinguished the personality of the original corporation. The corporation, upon such change in its
name, is in no sense a new corporation, nor the successor of the original corporation. It is the
same corporation with a different name, and its character is in no respect changed. A change in
the corporate name does not make a new corporation, and whether effected by special act or
under a general law, has no effect on the identity of the corporation, or on its property, rights, or
liabilities. The corporation continues, as before, responsible in its new name for all debts or other
liabilities which it had previously contracted or incurred.
5.ID.; ID.; LIABILITY OF AN AGENT TO AN INSTRUMENT IS PERSONAL WHEN
THERE IS FAILURE TO DISCLOSE PRINCIPAL. As a general rule, officers or directors
under the old corporate name bear no personal liability for acts done or contracts entered into by
officers of the corporation, if duly authorized. Inasmuch as such officers acted in their capacity
as agent of the old corporation and the change of name meant only the continuation of the old
juridical entity, the corporation bearing the same name is still bound by t he acts of its agents if
authorized by the Board. Under the Negotiable Instruments Law, the liability of a person signing
as an agent is specifically provided for in Section 20 thereof. Where the instrument contains or a
person adds to his signature words indicating that he signs for or on behalf of a principal, or in a
representative capacity, he is not liable on the instrument if he was duly authorized; but the mere
addition of words describing him as an agent, or as filling a representative character, wi thout
disclosing his principal, does not exempt him from personal liability.
6.ID.; ID.; PROMISSORY NOTES; RULE IN THE CASE OF REFORMINA VS. TOMOL (139
SCRA 260 [1985]), NOT APPLICABLE TO INSTRUMENTS WITH STIPULATED
INTEREST; CASE AT BAR. This Court takes note that the respondent Court, relying on
Reformina vs. Tomol, lowered the interest rate on the promissory notes from 16% to 12%. The
ruling in the case of Reformina vs. Tomol relied upon by the appellate court in reducing the
interest rate on the promissory notes from 16% to 12% per annum does not squarely apply to the
instant petition. In the abovecited case, the rate of 12% was applied to forebearances of money,
goods or credit and court judgments thereon, only in the absence of any stipulation between the
parties. In the case at bar however, it was found by the trial court that the rate of interest is 9%
per annum, which interest rate the plaintiff may at any time without notice, raise within the limits
allowed by law. And so, as of February 16, 1984, the plaintiff had fixed the interest at 16% per
annum.
7.ID.; USURY LAW; RATE, APPLICABLE ONLY TO INTEREST FOR USE OR
FORBEARANCE OF MONEY; INCREASE IN RATE, NOT SUBJECT TO ANY CEILING.
This Court has held that the rates under the Usury Law, as amended by Presidential Decree
No. 116, are applicable only to interests by way of compensation for the use or forebearance of
money. Article 2209 of the Civil Code, on the other hand, governs interests by way of damages.
This fine distinction was not taken into consideration by the appellate court, which instead made
a general statement that the interest rate be at 12% per annum. Inasmuch as this Court had
declared that increases in interest rates are not subject to any ceiling prescribed by the Usury
Law, the appellate court erred in limiting the interest rate at 12% per annum. Central Bank
Circular No. 905, Series of 1982 removed the Usury Law ceiling on interest rates.
Astro Electronics vs. Phil. Export
SYNOPSIS
Petitioner Astro Electronics Corp. (Astro) was granted several loans by the Philippine Trust
Company (Philtrust) amounting to P3M with interest, secured by three promissory notes signed
twice by petitioner Roxas, as President of Astro and in his personal capacity. When Astro
thereafter failed to pay these loan obligations to Philtrust, respondent Philippine Export and
Foreign Loan Guarantee Corp. (Philguarantee) paid 70% of the amount as guaranteed in behalf
of Astro. Subsequently, Philguarantee filed a complaint for sum of money against Astro and
Roxas and both the RTC and Court of Appeals ruled in favor of Philguarantee. Roxas, however,
disclaims any liability on the instruments alleging that he merely signed the same in blank and
the phrases in his personal capacity and in his official capacity were fraudulently inserted
without his knowledge. CSDTac
In signing his name aside from being the President of Astro, Roxas became a co-maker of the
promissory notes and cannot escape any liability arising from it. He did not deny signing the
notes twice and did not offer any explanation why he did so. Roxas, as President of Astro, is
reasonably, a businessman who is presumed to take ordinary care of his concerns.
SYLLABUS
1.COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; PROMISSORY NOTES;
PERSONS WHO WRITE THEIR NAMES ON THE FACE OF THE PROMISSORY NOTES
ARE MAKERS THEREOF. Astros loan with Philtrust Bank is secured by three promissory
notes. These promissory notes are valid and binding against Astro and Roxas. As it appears on
the notes, Roxas signed twice: first, as president of Astro and second, in his personal capacity. In
signing his name aside from being the President of Astro, Roxas became a co-maker of the
promissory notes and cannot escape any liability arising from it. Under the Negotiable
Instruments Law, persons who write their names on the face of promissory notes are makers,
promising that they will pay to the order of the payee or any holder according to its tenor. Thus,
even without the phrase personal capacity, Roxas will still be primarily liable as a joint and
several debtor under the notes considering that his intention to be liable as such is manifested by
the fact that he affixed his signature on each of the promissory notes twice which necessarily
would imply that he is undertaking the obligation in two different capacities, official and
personal.
2.ID.; ID.; ID.; SOLIDARY LIABILITY; WHEN PRESENT. The three promissory notes
uniformly provide: FOR VALUE RECEIVED, I/We jointly, severally and solidarily, promise to
pay to PHILTRUST BANK or order. .. An instrument which begins with I, We, or Either
of us promise to pay, when signed by two or more persons, makes them solidarily liable. Also,
the phrase joint and several binds the makers jointly and individually to the payee so that all
may be sued together for its enforcement, or the creditor may select one or more as the object of
the suit. Having signed under such terms, Roxas assumed the solidary liability of a debtor and
Philtrust Bank may choose to enforce the notes against him alone or jointly with Astro.
3.REMEDIAL LAW; EVIDENCE; PRESUMPTIONS; THAT TRANSACTIONS ARE FAIR
AND REGULAR AND THAT A PERSON TAKES ORDINARY CARE OF HIS CONCERNS;
NOT OVERCOME BY BARE NEGATIVE ALLEGATIONS. Roxas claim that the phrases
in his personal capacity and in his official capacity were inserted on the notes without his
knowledge was correctly disregarded by the RTC and the Court of Appeals. It is not disputed
that Roxas does not deny that he signed the notes twice. As aptly found by both the trial and
appellate court, Roxas did not offer any explanation why he did so. It devolves upon him to
overcome the presumptions that private transactions are presumed to be fair and regular and that
a person takes ordinary care of his concerns. Aside from his self-serving allegations, Roxas
failed to prove the truth of such allegations. Thus, said presumptions prevail over his claims.
Bare allegations, when unsubstantiated by evidence, documentary or otherwise, are not
equivalent to proof under our Rules of Court. Roxas is the President of Astro and reasonably, a
businessman who is presumed to take ordinary care of his concerns. Absent any countervailing
evidence, it cannot be gainsaid that he will not sign a document without first informing himself
of its contents and consequences. Clearly, he knew the nature of the transactions and documents
involved as he not executed these notes on different dates but he also executed, and again, signed
twice, a Continuing Suretyship Agreement wherein he guaranteed, jointly and severally with
Astro the repayment of P3,000,000.00 due to Philtrust. Such continuing suretyship agreement
even re-enforced his solidary liability to Philtrust because as a surety, he bound himself jointly
and severally with Astros obligation.
4.CIVIL LAW; OBLIGATIONS AND CONTRACTS; EXTINGUISHMENT;
SUBROGATION; ELUCIDATED. Subrogation is the transfer of all the rights of the creditor
to a third person, who substitutes him in all his rights. It may either be legal or conventional.
Legal subrogation is that which takes place without agreement but by operation of law because
of certain acts. Instances of legal subrogation are those provided in Article 1302 of the Civil
Code. Conventional subrogation, on the other hand, is that which takes place by agreement of the
parties.
5.ID.; ID.; ID.; ID.; LEGAL SUBROGATION; ACQUIESCENCE IS NOT NECESSARY
WHERE SUBROGATION OCCURS BY OPERATION OF LAW. Roxas acquiescence is
not necessary for subrogation to take place because the instant case is one of legal subrogation
that occurs by operation of law, and without need of the debtors knowledge. Further,
Philguarantee, as guarantor, became the transferee of all the rights of Philtrust as against Roxas
and Astro because the guarantor who pays is subjugated by virtue thereof to all the rights which
the creditor had against the debtor.
Francisco v. CA
SYNOPSIS
A Land Development and Construction Contract was entered into on June 23, 1977 by A.
Francisco Realty & Development Corporation (AFRDC), represented by its president, herein
petitioner, and respondent HERBY Commercial & Construction Corporation (HCCC),
represented by its President and General Manager respondent Jaime C. Ong, pursuant to a
housing project at San Jose del Monte, financed by the GSIS. Under the contract, HCCC agreed
to undertake the construction of 35 housing units and the development of 35 hectares of land.
The GSIS and AFRDC put up an Executive Committee Account with the Insular Bank of Asia in
America (IBAA) from which checks would be issued and co-signed by petitioner and GSIS
Vice-President, Armando Diaz.
After examination of the records of the GSIS, Ong discovered that Diaz and petitioner had
executed and signed seven checks of various dates and amounts, drawn against IBAA and
payable to HCCC for completed and delivered work under the contract. Petitioner forged the
signature of Ong without his knowledge or consent, to make it appear as if he had indorsed said
checks and that, after indorsing the checks for a second time by signing her name at the back of
the checks, she deposited said checks in her savings account with the IBAA. Ong filed a
complaint charging petitioner with estafa thru falsification of commercial documents. Petitioner,
on the other hand, denied having forged respondent Ong's signature on the checks, claiming that
Ong himself indorsed the checks and delivered the same to her in payment of the loans which he
extended to respondent HCCC. As a means of repayment, respondent Ong allegedly issued a
Certification authorizing petitioner to collect respondent HCCC's receivables from the GSIS.
Petitioner's claim was given credence, hence, the complaint was dismissed. Thereafter, private
respondents filed a case against petitioner and IBAA for the recovery of the total value of the
seven checks and for damages, attorney's fees, expenses of litigation and costs. After trial on the
merits, the trial court rendered its decision in favor of private respondents. On appeal, the Court
of Appeals affirmed the trial court's ruling. Hence, this petition for review on certiorari.
The Supreme Court affirmed the decision of the trial court with modification as to award of
damages. The Court concurred with the lower court's finding that petitioner forged the signature
of private respondent on the checks. Petitioner's defense must fail. The Negotiable Instruments
Law provides that where any person is under obligation to indorse in a representative capacity,
he may indorse in such terms as to negative personal liability. An agent, when so signing, should
indicate that he is merely signing in behalf of the principal and must disclose the name of his
principal; otherwise he shall be held personally liable. Even assuming that petitioner was
authorized by HCCC to sign private respondent's name, still, she did not indorse the instrument
in accordance with law. Instead of signing private respondent's name, petitioner should have
signed her own name and expressly indicated that she was signing as an agent of HCCC. Thus,
the certification cannot be used by petitioner to validate her act of forgery.
SYLLABUS
1.REMEDIAL LAW; EVIDENCE; FACTUAL FINDINGS OF TRIAL COURTS, WHEN
SUPPORTED BY SUBSTANTIAL EVIDENCE, DESERVE TO BE RESPECTED AND
AFFIRMED. As regards the forgery, we concur with the lower courts' finding that Francisco
forged the signature of Ong on the checks to make it appear as if Ong had indorsed said checks
and that, after indorsing the checks for a second time by signing her name at the back of the
checks, Francisco deposited said checks in her savings account with IBAA. The forgery was
satisfactorily established in the trial court upon the strength of the findings of the NBI
handwriting expert. Other than petitioner's self-serving denials, there is nothing in the records to
rebut the NBI's findings. Well-entrenched is the rule that findings of trial courts which are
factual in nature, especially when affirmed by the Court of Appeals, deserve to be respected and
affirmed by the Supreme Court, provided it is supported by substantial evidence on record, as it
is in the case at bench.
2.COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; TO NEGATIVE
PERSONAL LIABILITY, AN AGENT, WHEN SIGNING IN A REPRESENTATIVE
CAPACITY, MUST DISCLOSE THE NAME OF HIS PRINCIPAL. Petitioner claims that
she was, in any event, authorized to sign Ong's name on the checks by virtue of the Certification
executed by Ong in her favor giving her the authority to collect all the receivables of HCCC
from the GSIS, including the questioned checks. Petitioner's alternative defense must similarly
fail. The Negotiable Instruments Law provides that where any person is under obligation to
indorse in a representative capacity, he may indorse in such terms as to negative personal
liability. An agent, when so signing, should indicate that he is merely signing in behalf of the
principal and must disclose the name of his principal; otherwise he shall be held personally
liable. Even assuming that Francisco was authorized by HCCC to sign Ong's name, still,
Francisco did not indorse the instrument in accordance with law. Instead of signing Ong's name,
Francisco should have signed her own name and expressly indicated that she was signing as an
agent of HCCC. Thus, the Certification cannot be used by Francisco to validate her act of
forgery.
3.CIVIL LAW; DAMAGES; COMPENSATORY DAMAGES; AWARD THEREOF,
AFFIRMED IN CASE AT BAR. Every person who, contrary to law, wilfully or negligently
causes damage to another, shall indemnify the latter for the same. Due to her forgery of Ong's
signature which enabled her to deposit the checks in her own account, Francisco deprived HCCC
of the money due it from the GSIS pursuant to the Land Development and Construction
Contract. Thus, we affirm respondent court's award of compensatory damages in the amount of
P370,475.00, but with a modification as to the interest rate which shall be six percent (6%) per
annum, to be computed from the date of the filing of the complaint since the amount of damages
was alleged in the complaint; however, the rate of interest shall be twelve percent (12%) per
annum from the time the judgment in this case becomes final and executory until its satisfaction
and the basis for the computation of this twelve percent (12%) rate of interest shall be the
amount of P370,475.00. This is in accordance with the doctrine enunciated in Eastern Shipping
Lines, Inc. vs. Court of Appeals, et al., which was reiterated in Philippine National Bank vs.
Court of Appeals, Philippine Airlines, Inc. vs. Court of Appeals and in Keng Hua Paper Products
Co., Inc. vs. Court of Appeals.
4.ID.; ID.; EXEMPLARY DAMAGES; IMPOSED BY WAY OF EXAMPLE OR
CORRECTION FOR PUBLIC GOOD. We also sustain the award of exemplary damages in
the amount of P50,000.00. Under Article 2229 of the Civil Code, exemplary damages are
imposed by way of example or correction for the public good, in addition to the moral,
temperate, liquidated or compensatory damages. Considering petitioner's fraudulent act, we hold
that an award of P50,000.00 would be adequate, fair and reasonable.
5.ID.; ID.; ATTORNEY'S FEES AND LITIGATION EXPENSES; AWARDED IN CASE AT
BAR. The grant of exemplary damages justifies the award of attorney's fees in the amount of
P50,000.00, and the award of P5,000.00 for litigation expenses.
6.ID.; ID.; MORAL DAMAGES; WHEN MAY BE GRANTED. The appellate court's award
of P50,000.00 in moral damages is warranted. Under Article 2217 of the Civil Code, moral
damages may be granted upon proof of physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar
injury. Ong testified that he suffered sleepless nights, embarrassment, humiliation and anxiety
upon discovering that the checks due his company were forged by petitioner and that petitioner
had filed baseless criminal complaints agai nst him before the fiscal's office of Quezon City
which disrupted HCCC's business operations.
Insular Drug v. PNB
1.BANKS AND BANKING; BILLS AND NOTES; PRINCIPAL AND AGENT.
The right of an agent to indorse commercial paper is a very responsible power and will not be
lightly inferred. A salesman with authority to collect money belonging to his principal does
not have the implied authority to indorse checks received in payment. Any person taking
checks made payable to a corporation, which can act only by agents does so at his peril, and
must abide by the consequences if the agent who indorses the same is without authority.
2.ID.; ID.; ID. When a bank accepts the indorsements on checks made out to a
drug company of a salesman of the drug company and the indorsements of the salesman's
wife and clerk, and credits the checks to the personal account of the salesman and his wife,
permitting them to make withdrawals, the bank makes itself responsible to the drug company
for the amounts represented by the checks, unless it is pleaded and proved that after the
money was withdrawn from the bank, it passed to the drug company which thus suffered no
loss.
Phil. Bank of Commerce vs. Aruego
SYNOPSIS
Plaintiff bank instituted an action against defendant Jose M. Aruego for recovery of money it had
paid on various drafts drawn against it and signed by defendant as follows: "JOSE ARUEGO
(Acceptor) (SGD) JOSE ARUEGO". The complaint was dismissed upon motion of defendant
filed on the last day for filing his answer. The court, however, reconsidered its dismissal order
and defendant received the order setting it aside at 5:00 o'clock in the afternoon on March 11,
1960, he filed his answer on March 12, 1960 interposing as defenses that he signed the drafts in a
representative capacity, that he signed only as accommodation party, and that the drafts were
really no bills of exchange. Declared in default for having filed his answer one day late,
defendant moved to set the order aside alleging that it could not have been possible for him to
file his answer on March 11, 1960, and that he had good and substantial defenses. The court
denied the motion and rendered judgment by default. Defendant appealed from both the orders
denying his motions to set aside the default order and the judgment by default, which appeals
were consolidated and certified to the Supreme Court by the Court of Appeals.
The Supreme Court affirmed the appealed judgment holding that although it has been shown that
defendant's failure to answer on time is excusable, his defenses are nil and ineffective.
SYLLABUS
1.REMEDIAL LAW; JUDGMENTS RELIEF THEREFROM; REQUISITES. To entitle a
party to relief from judgment taken against him, through his mistake, inadvertence, supervise or
excusable neglect, he must show to the court that he has a meritorious defense. In other words, in
order to set aside the order of default, the defendant must not only show that his failure to answer
was due to fraud, accident, mistake or excusable negligence but also that he has a meritorious
defense.
2.ID.; ID.; ID.; ID.; FAILURE TO FILE ANSWER EXCUSABLE IN CASE AT BAR. The
failure of the defendant to file his answer on the last day for pleading is excusable where the
order setting aside the dismissal of the complaint was received at 5:00 o'clock in the afternoon of
such last day for pleading, and it was therefore impossible for him to have filed his answer on
that same day because the courts then held office only up to 5:00 o'clock in the afternoon; and
where the defendant immediately filed his answer on the following day.
3.ID.; ID.; ID.; ID.; CASE AT BAR FAILS TO SHOW MERITORIOUS DEFENSE. Where
the defense interposed by the defendant who has been declared in default is not meritorious, his
petition for relief from judgment should be denied; for, to grant the defendant's prayer will result
in a new trial which will serve no purpose and will just waste the time of the courts as well as the
parties because the defense is nil or ineffective.
4.COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; BILLS OF EXCHANGE;
PERSONS SIGNING IN REPRESENTATIVE CAPACITY SHOULD DISCLOSE
PRINCIPAL. Where an inspection of the drafts accepted by the defendant shows that
nowhere has he disclosed that he was signing as a representative of the Philippine Education
Foundation Company, and he merely signed as follows: "JOSE ARUEGO (Acceptor) (SGD)
JOSE ARUEGO", he is personally liable for the drafts accepted by him and he may not interpose
as a defense that he signed the drafts merely as an agent of the Philippines Education Foundation
Company of which he is president.
5.ID.; ID.; ID.; ACCOMMODATION PARTY DIFFERENTIATED FROM
DRAWEE/ACCEPTOR; CASE AT BAR. An accommodation party is one who has signed
the instrument as maker, drawer, acceptor, indorser, without receiving value thereof and for the
purpose of lending his name to some other person. Such person is liable on the instrument to a
holder for value, notwithstanding such holder, at the time of the taking of the instrument knew
him to be only an accommodation party. In lending his name to the party accommodated, the
accommodation party is in effect a surety for the latter. He lends his name to enable the
accommodated party to obtain credit or to raise money. He receives no part of the consideration
for the instrument but assumes liability to the other parties thereto because he wants to
accommodate another. In the instant case, the defendant signed as a drawee/acceptor. Under the
Negotiable Instruments Law, a drawee is primarily liable. Thus, if the defendant who is a lawyer,
really intended to be secondarily liable only, he should not have signed as an acceptor/drawee. In
doing so, he became primarily and personally liable for the drafts.
6.ID.; ID.; ID.; NATURE OF ACCEPTANCE NOT DETERMINATE AS TO WHETHER
COMMERCIAL PAPER IS BILL OF EXCHANGE OR NOT. Under the Negotiable
Instruments Law, a bill of exchange is an unconditional order in writing addressed by one person
to another, signed by the person giving it, requiring the person to whom it is addressed to party
on demand or at a fixed or determinable future time a sum certain in money to order or to bearer.
As long as a commercial paper conforms with the definition of a bill of exchange, that paper is
considered a bill of exchange. The nature of acceptance is important only in determination of
whether a commercial paper is a bill of exchange or not. Thus, in the case at bar, defendant's
contentions that the drafts signed by him were not really bills of exchange but mere pieces of
evidence of indebtedness because payments were made before acceptance, is not meritorious.
Ilusorio v. CA
SYNOPSIS
Petitioner is a prominent businessman, and as he was going out of the country a number of times,
he entrusted to his secretary his credit cards and his checkbook with blank checks. Subsequently,
petitioner filed a criminal action against his aforesaid secretary for estafa thru falsification for
encashing and depositing to her personal account seventeen checks drawn against the account of
the petitioner at respondent bank. Petitioner then requested the respondent bank to credit back
and restore to his account the value of the checks which were wrongfully encashed, but
respondent bank refused. Hence, petitioner filed the instant case. Manila Bank sought the
expertise of the National Bureau of Investigation in determining the genuineness of the
signatures appearing on the checks. However, petitioner failed to submit his specimen signatures
for purposes of comparison with those on the questioned checks. Consequently, the trial court
dismissed the case. On appeal, the Court of Appeals held that petitioner's own negligence was
the proximate cause of his loss. Hence, this petition. SaDICE
In affirming the decision of the Court of Appeals, the Supreme Court ruled that petitioner has no
cause of action against Manila Bank. To be entitled to damages, petitioner has the burden of
proving negligence on the part of the bank for failure to detect the discrepancy in the signatures
on the checks. It is incumbent upon petitioner to establish the fact of forgery, i.e., by submitting
his specimen signatures and comparing them with those on the questioned checks. Petitioner, by
his own inaction, was precluded from setting up forgery.
The Court likewise ruled that under Section 23 of the Negotiable Instruments Law, petiti oner is
precluded from setting up the forgery, assuming there is forgery, due to his own negligence in
entrusting to his secretary his credit cards and checkbook including the verification of his
statements of account.
SYLLABUS
1.REMEDIAL LAW; EVIDENCE; CREDIBILITY; FACTUAL FINDINGS OF TRIAL
COURT, GENERALLY NOT DISTURBED ON APPEAL. We stress the rule that the factual
findings of a trial court, especially when affirmed by the appellate court, are binding upon us and
entitled to utmost respect and even finality. We find no palpable error that would warrant a
reversal of the appellate court's assessment of facts anchored upon the evidence on record.
2.CIVIL LAW; QUASI-DELICT; DAMAGES CANNOT BE RECOVERED WHEN
PLAINTIFF'S OWN NEGLIGENCE IS THE IMMEDIATE AND PROXIMATE CAUSE OF
INJURY; CASE AT BAR. Petitioner's failure to examine his bank statements appears as the
proximate cause of his own damage. Proximate cause is that cause, which, in natural and
continuous sequence, unbroken by any efficient intervening cause, produces the injury, and
without which the result would not have occurred. In the instant case, the bank was not shown to
be remiss in its duty of sending monthly bank statements to petitioner so that any error or
discrepancy in the entries therein could be brought to the bank's attention at the earliest
opportunity. But, petitioner failed to examine these bank statements not because he was
prevented by some cause in not doing so, but because he did not pay sufficient attention to the
matter. Had he done so, he could have been alerted to any anomaly committed against him. In
other words, petitioner had sufficient opportunity to prevent or detect any misappropriation by
his secretary had he only reviewed the status of his accounts based on the bank statements sent to
him regularly. In view of Article 2179 of the New Civil Code, when the plaintiff's own
negligence was the immediate and proximate cause of his injury, no recovery could be had for
damages.
3.COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; FORGERY; EFFECT OF
FORGED SIGNATURE; EXCEPTION; CASE AT BAR. Petitioner further contends that
under Section 23 of the Negotiable Instruments Law a forged check is inoperative, and that
Manila Bank had no authority to pay the forged checks. True, it is a rule that when a signature is
forged or made without the authority of the person whose signature it purports to be, the check is
wholly inoperative. No right to retain the instrument, or to give a discharge therefor, or to
enforce payment thereof against any party, can be acquired through or under such signature.
However, the rule does provide for an exception, namely: "unless the party against whom it is
sought to enforce such right is precluded from setting up the forgery or want of authority." In the
instant case, it is the exception that applies. In our view, petitioner is precluded from setting up
the forgery, assuming there is forgery, due to his own negligence in entrusting to his secretary his
credit cards and checkbook including the verification of his statements of account.
4.REMEDIAL LAW; CRIMINAL PROCEDURE; PROSECUTION OF OFFENSES;
PLAINTIFF IN CRIMINAL ACTION IS THE STATE, FOR THE COMMISSION OF
FELONY IS AN OFFENSE AGAINST THE STATE; CASE AT BAR. [T]he fact that
Manila Bank had filed a case for estafa against Eugenio would not stop it from asserting the fact
that forgery has not been clearly established. Petitioner cannot hold private respondent in
estoppel for the latter is not the actual party to the criminal action. In a criminal action, the State
is the plaintiff, for the commission of a felony is an offense against the State. Thus, under
Section 2, Rule 110 of the Rules of Court the complaint or information filed in court is required
to be brought in the name of the "People of the Philippines." SCDaET
PNB vs. National City of NY
1.BANKS AND BANKING; ACCEPTANCE OR CERTIFICATION OF CHECKS;
ESTOPPEL. Where a check is accepted or certified by the bank on which it is drawn, the
bank is estopped to deny the genuineness of the drawer's signature and his capacity to issue
the instrument.
2.ID; PAYMENT OF FORGED CHECK. If a drawee bank pays a forged check
which was previously accepted or certified by the said bank it cannot recover from a holder
who did not participate in the forgery and did not have actual notice thereof.
3.ID; ID. The payment of a check does not include or imply its acceptance in the
sense that this word is used in section 62 of the Negotiable Instruments Act.
4.ID.; ID. In the case of the payment of a forged check, even without for mer
acceptance, the drawee can not recover from a holder in due course not chargeable with any
act of negligence or disregard of duty.
5.ID.; ID. To entitle the holder of a forged check to retain the money obtained
thereon, there must be a showing that the duty to ascertain the genuineness of the signature
rested entirely upon the drawee, and that the constructive negligence of such drawee in
failing to detect the forgery was not affected by any disregard of duty on the part of the
holder, or by failure of any precaution which, from his implied assertion in presenting the
check as a sufficient voucher, the drawee had the right to believe he had taken.
6.ID.; ID. In the absence of actual fault on the part of the drawee, his constructive
fault in not knowing the signature of the drawer and detecting the forgery will not preclude
his recovery from one who took the check under circumstances of suspicion and without
proper precaution, or whose conduct has been such as to mislead the drawee or induce him to
pay the check without the usual scrutiny or other precautions against mistake or fraud.
7.ID.; ID. One who purchases a check or draft is bound to satisfy himself that the
paper is genuine, and that by indorsing it or presenting it for payment or putting it into
circulation before presentation he impliedly asserts that he performed his duty.
8.ID.; ID. While the foregoing rule, chosen from a welter of decisions on the issue
as the correct one, will not hinder the circulation of two recognized mediums of exchange by
which the great bulk of business is carried on, namely, drafts and checks, on the other hand,
it will encourage and demand prudent business methods on the part of those receiving such
mediums of exchange.
9.ID.; ID. It being a matter of record in the present case, that the appellee bank is
no more chargeable with the knowledge of the drawer's signature than the appellant is, as the
drawer was as much the customer of the appellant as of the appellee, the presumption that a
drawee bank is bound to know more than any indorser the signature of its depositor does not
hold.
10.ID.; ID. According to the undisputed facts of the case the appellant in
purchasing the papers in question from unknown persons without making any inquiry as to
the identity and authority of the said persons negotiating and indorsing them, acted
negligently and contributed to the appellee's constructive negligence in failing to detect the
forgery.
11.ID.; ID. Under the circumstances of the case, if the appellee bank is allowed to
recover, there will be no change of position as to the injury or prejudice of the appellant.
PNB vs. Quimpo
1.MERCANTILE LAW; NEGOTIABLE INSTRUMENTS; CHECKS; BANK'S PRIME DUTY
IS TO ASCERTAIN GENUINENESS OF SIGNATURE OF DRAWER OR DEPOSITOR.
The prime duty of a bank is to ascertain the genuineness of the signature of the drawer or the
depositor on the check being encashed. It is expected to use reasonable business prudence in
accepting and cashing a check presented to it.
2.REMEDIAL LAW; EVIDENCE; FINDINGS OF FACTS OF THE TRIAL COURT,
CONCLUSIVE. In this case the findings of facts of the court a quo are conclusive. The trial
court found that a comparison of the signature on the forged check and the sample signatures of
private respondent show marked differences as the graceful lines in the sample signature which
is completely different from those of the signature on the forged check. Indeed the NBI
handwriting expert Estelita Santiago Agnes whom the trial court considered to be an "unbiased
scientific expert" indicated the marked differences between the signature of private respondent
on the sample signatures and the questioned signature. Notwithstanding the testimony of Col.
Fernandez, witness for petitioner, advancing the opinion that the questioned signature appears to
be genuine, the trial court by merely examining the pictorial report presented by said witness,
found a marked difference in the second "c" in Francisco as written on the questioned signature
as compared to the sample signatures, and the separation between the "s" and the "c" in the
questioned signature while they are connected in the sample signatures. Obviously, petitioner
was negligent in encashing said forged check without carefully examining the signature which
shows marked variation from the genuine signature of private respondent.
3.MERCANTILE LAW; NEGOTIABLE INSTRUMENTS; CHECKS; NEGLIGENCE ON
THE PART OF THE DRAWER TO ABSOLVE BANK FROM LIABILITY ON FORGED
CHECK, ABSENT. In reference to the allegation of the petitioner that it is the negligence of
private respondent that is the cause of the loss which he suffered, the trial court held otherwise.
Private respondent trusted Ernesto Santos as a classmate and a friend. He brought him along in
his car to the bank and he left his personal belongings in the car. Santos however removed and
stole a check from his check book without the knowledge and consent of private respondent. No
doubt private respondent cannot be considered negligent under the circumstances of the case.
PNB vs. CA
1.MERCANTILE LAW; NEGOTIABLE INSTRUMENTS LAW; CHECKS;
INDORSEMENTS; FORGERY; LIABILITY OF DRAWEE THEREON. The question
whether or not the indorsements have been falsified is immaterial to the PNB's liability as a
drawee, or to its right to recover from the PCIB, for, as against the drawee, the indorsement of an
intermediate bank does not guarantee the signature of the drawer, since the forgery of the
indorsement is not the cause of the loss.
2.ID.; ID.; ID.; WARRANTY; NO RIGHT OF RECOVERY THEREUNDER BY PNB. With
respect to the warranty on the back of the check, it should be noted that the PCIB thereby
guaranteed "all prior indorsements", not the authenticity of the signatures of the officers of the
GSIS who signed on its behalf, because the GSIS is not an indorser of the check, but its drawer.
Said warranty is irrelevant, therefore, to the PNB's alleged right to recover from the PCIB. It
could have been availed of by a subsequent indorsee or a holder in due course subsequent to the
PCIB, but, the PNB is neither. Indeed, upon payment by the PNB, as drawee, the check ceased to
be a negotiable instrument, and became a mere voucher or proof of payment.
3.ID.; ID.; ID.; ACCEPTANCE AND PAYMENT DISTINGUISHED. The acceptance of a
bill is the signification by the drawee of his assent to the order of the drawer, which in the case of
checks, is the payment on demand, of a given sum of money. Upon the other hand, actual
payment of the amount of a check implies not only an assent to said order of the drawer and a
recognition of the drawee's obligation to pay the aforementioned sum, but, also, a compliance
with such obligation.
4.ID.; ID.; ID.; PAYMENT OF A FORGED CHECK; RECOVERY OF PAYMENT;
LIABILITY OF PROXIMATE CAUSE OF THE LOSS; CASE AT BAR. The PCIB did not
cash the check upon its presentation by Augusto Lim; the latter had merely deposited it in his
current account with the PCIB; on the same day, the PCIB sent it, through the Central Bank, to
the PNB for clearing; the PNB did not return the check to the PCIB the next day or at any other
time; said failure to return the check to the PCIB induced, under the current banking practice,
that the PNB considered the check good and would honor it; in fact, the PNB honored the check
and paid its amount to the PCIB; and only then did the PCIB allow Augusto Lim to draw said
amount from his aforementioned current account. Thus, by not returning to the check to the
PCIB, by thereby indicating that the PNB had found nothing wrong with the check and would
honor the same, and by actually paying its amount to the PCIB, the PNB induced the latter, not
only to believe that the check was genuine and good in every respect, but, also, to pay its amount
to Augusto Lim. In other words, the PNB was the primary or proximate cause of the loss, and,
hence, may not recover from the PCIB.
5.ID.; ID.; ID.; ID.; ID.; SETTLED RULE. It is a well-settled maxim of law and equity that
when one of two innocent persons must suffer by the wrongful act of a third person, the loss
must be borne by the one whose negligence was the proximate cause of the loss or who put it
into the power of the third person to perpetrate the wrong.
Republic vs. Equitable Bank
1.BANKS AND BANKING; PAYMENT OF CHECKS; "24-HOUR CLEARING HOUSE
RULE COVERS GOVERNMENT TREASURY. The "24-hour clearing house rule" of the
Central Bank covers the Government Treasury because the Treasury is a member of the Clearing
Office and documentary evidence shows that the Treasury "has agreed to clear its clearable items
through" the said office "subject to the rules and regulations of the Central Bank, and, besides,
the said rule applies not only to banks, but, also, to the institutions and entities therein alluded to.
2.ID.; ID.; ID.; LIABILITY DUE TO NEGLIGENCE OF THE TREASURY. Where the
Treasury had not only been negligent in clearing its own warrants, but had, also, thereby induced
the two defendant banks to pay the amounts thereof to their respective depositors, and where,
moreover, the irregularity of said warrants was apparent on the face thereof from the viewpoint
of the Treasury, and said defendant banks had not been informed of said irregularity until after
the said warrants had been cleared and honored, it is held that the loss of the amounts represented
by said warrants is mainly imputable to acts and omissions of the Treasury, for which said banks
should not and cannot be penalized.
San Carlos Milling v. BPI
1.BANKS AND BANKING; PAYMENT OF FORGED CHECKS. It is an
elementary principle of banking that "A bank is bound to know the signatures of its
customers; and if it pays a forged check, it must be considered as making the payment out of
its own funds, and cannot ordinarily charge the amount so paid to the account of the
depositor whose name was forges." (7. C. J., 683.) There is no act of the plaintiff that led the
Bank of the Philippine Islands astray. If it was in fact lulled into a false sense of security, it
was by the effrontery of D, the messenger to whom it entrusted the large sum of money in
question.
2.ID.; ID.; PROXIMATE CAUSE OF LOSS. The signatures of the checks in
question being forged, under section 23 of the Negotiable Instruments Law they are not a
charge against plaintiff nor are the checks of any value to the defendant. The proximate cause
of loss was due to the negligence of the Bank of the Philippine Islands in honoring and
cashing the two forged checks.
3.ID.; DEPOSITOR AND BANKER; CREDITOR AND DEBTOR. It is very
clear that the relation of plaintiff with the Bank of the Philippine Islands in regard to the
checks in question, was that of depositor and banker, creditor and debtor. The contention of
the bank that it was a gratuitous bailee is without merit, and absolutely contrary to what the
bank did. It did not take it up as a separate account but it transferred the credit to plaintiff's
current account as a depositor of the bank. Banks are not gratuitous bailees of the funds
deposited with them by their customers.
4.ID.; ID.; ID. As the money in question was in fact paid to the plaintiff
corporation the China Banking Corporation was indebted neither to the plaintiff nor to the
Bank of the Philippine Islands and consequently was properly absolved from any
responsibility.
Associated Bank vs. CA
1.COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; CROSSED CHECK;
CONSTRUED. Under accepted banking practice, crossing a check is done by writing two
parallel lines diagonally on the left top portion of the checks. The crossing is special where the
name of a bank or a business institution is written between the two parallel lines, which means
that the drawee should pay only with the intervention of that company. The crossing is general
where the words written between the two parallel lines are "and Co." or "for payee's account
only," as in the case at bar. This means that the drawee bank should not encash the check but
merely accept it for deposit.
2.ID.; ID.; ID.; EFFECTS. In State Investment House vs. IAC, (175 SCRA 310) this Court
declared that "the effects of crossing a check are: (1) that the check may not be encashed but
only deposited in the bank; (2) that the check may be negotiated only once to one who has an
account with a bank; and (3) that the act of crossing the check serves as a warning to the holder
that the check has been issued for a definite purpose so that he must inquire if he has received the
check pursuant to that purpose."
3.ID.; ID.; ID.; PRESENTMENT FOR PAYMENT; RULE FOR SUFFICIENCY THEREOF.
The effects therefore of crossing a check relate to the mode of its presentment for payment.
Under Sec. 72 of the Negotiable Instruments Law, presentment for payment, to be sufficient,
must be made by the holder or by some person authorized to receive payment on his behalf. Who
the holder or authorized person is depends on the instruction stated on the face of the check.
4.ID.; ID.; ID.; LIABILITY OF A BANK IN ACCEPTING THEREOF ON A FORGED OR
UNAUTHORIZED INDORSEMENT; CASE AT BAR. The petitioners argue that the cause
of action for violation of the common instruction found on the face of the checks exclusively
belongs to the issuers thereof and not to the payee. Moreover, having acted in good faith as they
merely facilitated the encashment of the checks, they cannot be made liable to the private
respondent. The subject checks were accepted for deposit by the Bank for the account of Rafael
Sayson although they were crossed checks and the payee was not Sayson but Melissa's RTW.
The Bank stamped thereon its guarantee that "all prior endorsements and/or lack of endorsements
(were) guaranteed." By such deliberate and positive act, the Bank had for all legal intents and
purposes treated the said checks as negotiable instruments and, accordingly, assumed the
warranty of the endorser. The weight of authority is to the effect that "the possession of a check
on a forged or unauthorized indorsement is wrongful, and when the money is collected on the
check, the bank can be held 'for moneys had and received.'" The proceeds are held for the
rightful owner of the payment and may be recovered by him. The position of the bank taking the
check on the forged or unauthorized indorsement is the same as if it had taken the check and
collected without indorsement at all. The act of the bank amounts to conversion of the check.
5.ID.; ID.; ID.; DUTY OF THE BANK TO SCRUTINIZE CHECKS DEPOSITED WITH IT
FOR THE PURPOSE OF DETERMINING THEIR GENUINENESS AND REGULARITY;
CASE AT BAR. It is not disputed that the proceeds of the subject checks belonged to the
private respondent. As she had not at any time authorized Rafael Sayson to endorse or encash
them, there was conversion of the funds by the Bank. When the Bank paid the checks so
endorsed notwithstanding that title had not passed to the endorser, it did so at its peril and
became liable to the payee for the value of the checks. This liability attached whether or not the
Bank was aware of the unauthorized endorsement. The petitioners were negligent when they
permitted the encashment of the checks by Sayson. The Bank should have first verified his right
to endorse the crossed checks, of which he was not the payee, and to deposit the proceeds of the
checks to his own account. The Bank was by reason of the nature of the checks put upon notice
that they were issued for deposit only to the private respondent's account. Its failure to inquire
into Sayson's authority was a breach of a duty it owed to the private respondent. As the Court
stressed in Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corp., "the law
imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for the
purpose of determining their genuineness and regularity. The collecting bank, being primarily
engaged in banking, holds itself out to the public as the expert on this filed, and the law thus
holds it to high standard of conduct." The petitioners insist that the private respondent has no
cause of action against them because they have no privity of contract with her. They also argue
that it was Eddie Reyes, the private respondent's own husband, who endorsed the checks.
Assuming that Eddie Reyes did endorse the crossed checks, we hold that the Bank would still be
liable to the private respondent because he was not authorized to make the endorsements. And
even if the endorsements were forged, as alleged, the Bank would still be liable to the private
respondent for not verifying the endorser's authority. There is no substantial difference between
an actual forging of a name to a check as an endorsement by a person not authorized to make the
signature and the affixing of a name to a check as an endorsement by a person not authorized to
endorse it. The Bank does not deny collecting the money on the endorsement. It was its
responsibility to inquire as to the authority of Rafael Sayson to deposit crossed checks payable to
Melissa's RTW upon a prior endorsement by Eddie Reyes. The failure of the Bank to make this
inquiry was a breach of duty that made it liable to the private respondent for the amount of the
checks.
6.ID.; ID.; ID.; RIGHT OF PAYEE OF AN ILLEGALLY ENCASHED CHECKS; RULE.
There being no evidence that the crossed checks were actually received by the private
respondent, she would have a right of action against the drawer companies, which in turn could
go against their respective drawee banks, which in turn could sue the herein petitioner as
collecting bank. In a similar situation, it was held that, to simplify proceedings, the payee of the
illegally encashed checks should be allowed to recover directly from the bank responsible for
such encashment regardless of whether or not the checks were actually delivered to the payee.
We approve such direct action in the case at bar. It is worth repeating that before presenting the
checks for clearing and for payment, the Bank had stamped on the back thereof the words: "All
prior endorsements and/or lack of endorsements guaranteed," and thus made the assurance that it
had ascertained the genuineness of all prior endorsements.
Associated Bank vs. CA
1.COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS; A FORGED SIGNATURE IS
WHOLLY INOPERATIVE AND NO ONE CAN GAIN TITLE TO THE INSTRUMENT
THROUGH IT. A forged signature, whether it be that of the drawer or the payee, is wholly
inoperative and no one can gain title to the instrument through it. A person whose signature to an
instrument was forged was never a party and never consented to the contract which allegedly
gave rise to such instrument. Section 23 does not avoid the instrument but only the forged
signature. Thus, a forged indorsement does not operate as the payee's indorsement.
2.ID.; ID.; ID.; EXCEPTION. The exception to the general rule in Section 23 is where "a
party against whom it is sought to enforce a right is precluded from setting up the forgery or
want of authority." Parties who warrant or admit the genuineness of the signature in question and
those who, by their acts, silence or negligence are estopped from setting up the defense of
forgery, are precluded from using this defense. Indorsers, persons negotiating by delivery and
acceptors are warrantors of the genuineness of the signatures on the instrument.
3.ID.; ID.; BEARER INSTRUMENT; SIGNATURE OF PAYEE OR HOLDER, NOT
NECESSARY TO PASS TITLE TO THE INSTRUMENT. In bearer instruments, the
signature of the payee or holder is unnecessary to pass title to the instrument. Hence, when the
indorsement is a forgery, only the person whose signature is forged can raise the defense of
forgery against a holder in due course.
4.ID.; ID.; ORDER INSTRUMENT; SIGNATURE OF HOLDER, ESSENTIAL TO
TRANSFER TITLE TO THE INSTRUMENT; EFFECT OF FORGED INDORSEMENT OF
HOLDER. Where the instrument is payable to order at the time of the forgery, such as the
checks in this case, the signature of its rightful holder (here, the payee hospital) is essential to
transfer title to the same instrument. When the holder's indorsement is forged, all parties prior to
the forgery may raise the real defense of forgery against all parties subsequent thereto. cdasia
5.ID.; ID.; ID.; LIABILITY OF GENERAL ENDORSER An indorser of an order instrument
warrants "that the instrument is genuine and in all respects what it purports to be; that he has a
good title to it; that all prior parties had capacity to contract; and that the instrument is at the time
of his indorsement valid and subsisting." He cannot interpose the defense that signatures prior to
him are forged.
6.ID.; ID.; ID.; ID.; COLLECTING BANK WHERE CHECK IS DEPOSITED AND
INDORSES CHECK, AN INDORSER. A collecting bank where a check is deposited and
which indorses the check upon presentment with the drawee bank, is such an indorser. So even if
the indorsement on the check deposited by the bank's client is forged, the collecting bank is
bound by his warranties as an indorser and cannot set up the defense of forgery as against the
drawee bank.
7.ID.; ID.; ID.; PAYMENT UNDER A FORGED INDORSEMENT IS NOT TO THE
DRAWERS' ORDER; REASON. The bank on which a check is drawn, known as the drawee
bank, is under strict liability to pay the check to the order of the payee. The drawer's instructions
are reflected on the face and by the terms of the check. Payment under a for ged indorsement is
not to the drawer's order. When the drawee bank pays a person other than the payee, it does not
comply with the terms of the check and violates its duty to charge its customer's (the drawer)
account only for properly payable items. Since the drawee bank did not pay a holder or other
person entitled to receive payment, it has no right to reimbursement from the drawer. The
general rule then is that the drawee bank may not debit the drawer's account and is not entitled to
indemnification from the drawer. The risk of loss must perforce fall on the drawee bank.
8.ID.; ID.; ID.; ID.; EXCEPTIONS. If the drawee bank can prove a failure by the
customer/drawer to exercise ordinary care that substantially contributed to the making of the
forged signature, the drawer is precluded from asserting the forgery. If at the same time the
drawee bank was also negligent to the point of substantially contributing to the loss, then such
loss from the forgery can be apportioned between the negligent drawer and t he negligent bank.
9.ID.; ID.; ID.; WHERE THE DRAWERS' SIGNATURE IS FORGED, THE DRAWER CAN
RECOVER FROM THE DRAWEE BANK. In cases involving a forged check, where the
drawer's signature is forged, the drawer can recover from the drawee bank. No drawee bank has a
right to pay a forged check. If it does, it shall have to recredit the amount of the check to the
account of the drawer. The liability chain ends with the drawee bank whose responsibility it is to
know the drawer's signature since the latter is its customer.
10.ID.; ID.; ID.; IN CASES OF FORGED INDORSEMENTS, THE LOSS FALLS ON THE
PARTY WHO TOOK THE CHECK FROM THE FORGER OR THE FORGER HIMSELF.
In cases involving checks with forged indorsements, such as the present petition, the chain of
liability does not end with the drawee bank. The drawee bank may not debit the account of the
drawer but may generally pass liability back through the collection chain to the party who took
from the forger and, of course, to the forger himself, if available. In other words, the drawee
bank can seek reimbursement or a return of the amount it paid from the presentor bank or person.
Theoretically, the latter can demand reimbursement from the person who indorsed the check to it
and so on. The loss falls on the party who took the check from the forger, or on the forger
himself. Since a forged indorsement is inoperative, the collecting bank had no right to be paid by
the drawee bank. The former must necessarily return the money paid by the latter because it was
paid wrongfully.
11.ID.; ID.; ID.; ID.; CASE AT BAR. In this case, the checks were indorsed by the collecting
bank (Associated Bank) to the drawee bank (PNB). The former will necessarily be liable to the
latter for the checks bearing forged indorsements. If the forgery is that of the payee's or holder's
indorsement, the collecting bank is held liable, without prejudice to the latter proceeding against
the forger.
12.ID.; ID.; ID.; GENERAL INDORSER; COLLECTING BANK OR LAST ENDORSER
SUFFERS LOSS ON FORGED INDORSEMENT; REASON. More importantly, by reason
of the statutory warranty of a general indorser in Section 66 of the Negotiable Instruments Law,
a collecting bank which indorses a check bearing a forged indorsement and presents it to the
drawee bank guarantees all prior indorsements, including the forged indorsement. It warrants that
the instrument is genuine, and that it is valid and subsisting at the time of his indorsement.
Because the indorsement is a forgery, the collecting bank commits a breach of this warranty and
will be accountable to the drawee bank. This liability scheme operates without regard to fault on
the part of the collecting/presenting bank. Even if the latter bank was not negligent, it would still
be liable to the drawee bank because of its indorsement. The Court has consistently ruled that
"the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain
the genuineness of all prior endorsements considering that the act of presenting the check for
payment to the drawee is an assertion that the party making the presentment has done its duty to
ascertain the genuineness of the endorsements." Moreover, the collecting bank is made liable
because it is privy to the depositor who negotiated the check. The bank knows him, his address
and history because he is a client. It has taken a risk on his deposit. The bank is also in a better
position to detect forgery, fraud or irregularity in the indorsement.
13.ID.; ID.; ID.; DRAWEE BANK NOT LIABLE FOR LOSS ON FORGED INDORSEMENT;
REASON. The drawee bank is not similarly situated as the collecting bank because the
former makes no warranty as to the genuineness of any indorsement. The drawee bank's duty is
but to verify the genuineness of the drawer's signature and not of the indorsement because the
drawer is its client.
14.ID.; ID.; ID.; ID.; DUTY OF DRAWEE BANK TO PROMPTLY INFORM PRESENTOR
OF THE FORGERY UPON DISCOVERY; EFFECT OF FAILURE TO PROMPTLY
INFORM. The drawee bank can recover the amount paid on the check bearing a forged
indorsement from the collecting bank. However, a drawee bank has the duty to promptly inform
the presentor of the forgery upon discovery. If the drawee bank delays in informing the presentor
of the forgery, thereby depriving said presentor of the right to recover from the forger, the former
is deemed negligent and can no longer recover from the presentor.
15.ID.; ID.; ID.; ID.; ID.; ID.; EFFECT OF CONTRIBUTORY NEGLIGENCE IN CASE AT
BAR. Applying these rules to the case at bench, PNB, the drawee bank, cannot debit the
current account of the Province of Tarlac because it paid checks which bore forged
indorsements. However, if the Province of Tarlac as drawer was negligent to the point of
substantially contributing to the loss, then the drawee bank PNB can charge its account. If both
drawee bank-PNB and drawer-Province of Tarlac were negligent, the loss should be properly
apportioned between them. The loss incurred by drawee bank-PNB can be passed on to the
collecting bank-Associated Bank which presented and indorsed the checks to it. Associated Bank
can, in turn, hold the forger, Fausto Pangilinan, liable. If PNB negligently delayed in informing
Associated Bank of the forgery, thus depriving the latter of the opportunity to recover from the
forger, it forfeits its right to reimbursement and will be made to bear the loss. After careful
examination of the records, the Court finds that the Province of Tarlac was equally negligent and
should, therefore, share the burden of loss from the checks bearing a forged i ndorsement. The
Province of Tarlac permitted Fausto Pangilinan to collect the checks when the latter, having
already retired from government service, was no longer connected with the hospital. With the
exception of the first check (dated January 17, 1978), all the checks were issued and released
after Pangilinan's retirement on February 28, 1978. After nearly three years, the Treasurer's
office was still releasing the checks to the retired cashier. In addition, some of the aid allotment
checks were released to Pangilinan and the others to Elizabeth Juco, the new cashier. The fact
that there were now two persons collecting the checks for the hospital is an unmistakable sign of
an irregularity which should have alerted employees in the Treasurer's office of the fraud being
committed. There is also evidence indicating that the provincial employees were aware of
Pangilinan's retirement and consequent dissociation from the hospital. The failure of the
Province of Tarlac to exercise due care contributed to a significant degree to the loss tantamount
to negligence. Hence, the Province of Tarlac should be liable for part of the total amount paid on
the questioned checks. The drawee bank PNB also breached its duty to pay only according to the
terms of the check. Hence, it cannot escape liability and should also bear part of the loss. The
Court finds as reasonable, the proportionate sharing of fifty percent-fifty percent (50%-50%).
Due to the negligence of the Province of Tarlac in releasing the checks to an unauthorized person
(Fausto Pangilinan), in allowing the retired hospital cashier to receive the checks for the payee
hospital for a period close to three years and in not properly ascertaining why the retired hospital
cashier was collecting checks for the payee hospital in addition to the hospital's real cashier,
respondent Province contributed to the loss amounting to P203,300.00 and shall be liable to the
PNB for fifty (50%) percent thereof. In effect, the Province of Tarlac can only recover fifty
percent (50%) of P203,300.00 from PNB. The collecting bank, Associated Bank, shall be liable
to PNB for fifty (50%) percent of P203,300.00. It is liable on its warranties as indorser of the
checks which were deposited by Fausto Pangilinan, having guaranteed the genuineness of all
prior indorsements, including that of the chief of the payee hospital, Dr. Adena Canlas.
Associated Bank was also remiss in its duty to ascertain the genuineness of the payee's
indorsement.

16.ID.; ID.; ID.; FORGERY; DELAY IN INFORMING COLLECTING BANK OF FORGERY
BY THE DRAWEE BANK SIGNIFIES NEGLIGENCE. A delay in informing the collecting
bank (Associated Bank) of the forgery, which deprives it of the opportunity to go after the forger,
signifies negligence on the part of the drawee bank (PNB) and will preclude it from claiming
reimbursement.
17.ID.; ID.; ID.; RETURN OF FORGED INDORSEMENT; 24-HOUR PERIOD BUT NOT
BEYOND PERIOD FOR FILING LEGAL ACTION FOR BANKS OUTSIDE METRO
MANILA; CASE AT BAR. Under Section 4(c) of CB Circular No. 580, items bearing a
forged endorsement shall be returned within twenty-four (24) hours after discovery of the
forgery but in no event beyond the period fixed or provided by law for filing of a legal action by
the returning bank. Section 23 of the PCHC Rules deleted the requirement that items bearing a
forged endorsement should be returned within twenty-four hours. Associated Bank now argues
that the aforementioned Central Bank Circular is applicable. Since PNB did not return the
questioned checks within twenty-four hours, but several days later, Associated Bank alleges that
PNB should be considered negligent and not entitled to reimbursement of the amount it paid on
the checks. The Central Bank circular was in force for all banks until June 1980 when the
Philippine Clearing House Corporation (PCHC) was set up and commenced operations. Banks in
Metro Manila were covered by the PCHC while banks located elsewhere still had to go through
Central Bank Clearing. In any event, the twenty-four-hour return rule was adopted by the PCHC
until it was changed in 1982. The contending banks herein, which are both branches in Tarlac
province, are therefore not covered by PCHC Rules but by CB Circular No. 580. Clearly then,
the CB circular was applicable when the forgery of the checks was discovered in 1981.
18.ID.; ID.; ID.; ID.; RATIONALE. The rule mandates that the checks be returned within
twenty-four hours after discovery of the forgery but in no event beyond the period fixed by the
law for filing a legal action. The rationale of the rule is to give the collecting bank (which
indorsed the check) adequate opportunity to proceed against the forger. If prompt notice is not
given, the collecting bank may be prejudiced and lose the opportunity to go after its depositor.
19.ID.; ID.; ID.; ID.; FAILURE TO RETURN FORGED INDORSEMENT WITHIN 24
HOURS FROM DISCOVERY DOES NOT PREJUDICE COLLECTING BANK WHICH
PRESENTED FORGER AS ITS REBUTTAL WITNESS. The Court finds that even if PNB
did not return the questioned checks to Associated Bank within twenty-four hours, as mandated
by the rule, PNB did not commit negligent delay. Under the circumstances, PNB gave prompt
notice to Associated Bank and the latter bank was not prejudiced in going after Fausto
Pangilinan. After the Province of Tarlac informed PNB of the forgeries, PNB necessarily had to
inspect the checks and conduct its own investigation. Thereafter, it requested the Provincial
Treasurer's office on March 31, 1981 to return the checks for verification. The Province of Tarlac
returned the checks only on April 22, 1981. Two days later, Associated Bank received the checks
from PNB. Associated Bank was also furnished a copy of the Province's letter of demand to PNB
dated March 20, 1981, thus giving it notice of the forgeries. At this time, however, Pangilinan's
account with Associated had only P24.63 in it. Had Associated Bank decided to debit
Pangilinan's account, it could not have recovered the amounts paid on the questioned checks. In
addition, while Associated Bank filed a fourth-party complaint against Fausto Pangilinan, it did
not present evidence against Pangilinan and even presented him as its rebuttal witness. Hence,
Associated Bank was not prejudiced by PNB's failure to comply with the twenty-four-hour return
rule.
20.REMEDIAL LAW; ACTIONS; ESTOPPEL; WILL NOT APPLY TO DRAWEE BANK
WHO PAID AND CLEARED CHECKS WITH FORGED INDORSEMENT. Associated
Bank contends that PNB is estopped from requiring reimbursement because the latter paid and
cleared the checks. The Court finds this contention unmeritorious. Even if PNB cleared and paid
the checks, it can still recover from Associated Bank. This is true even if the payee's Chief
Officer who was supposed to have indorsed the checks is also a customer of the drawee bank.
PNB's duty was to verify the genuineness of the drawer's signature and not the genuineness of
payee's indorsement. Associated Bank, as the collecting bank, is the entity with the duty to verify
the genuineness of the payee's indorsement.
21.CIVIL LAW; OBLIGATIONS AND CONTRACTS; THERE IS NO PRIVITY OF
CONTRACT BETWEEN THE DRAWER AND COLLECTING BANK; DRAWER CAN
RECOVER FROM DRAWEE BANK AND DRAWEE BANK CAN SEEK
REIMBURSEMENT FROM COLLECTING BANK. PNB also avers that respondent court
erred in adjudicating circuitous liability by directing PNB to return to the Province of Tarlac the
amount of the checks and then directing Associated Bank to reimburse PNB. The Court finds
nothing wrong with the mode of the award. The drawer, Province of Tarlac, is a client or
customer of the PNB, not of Associated Bank. There is no privity of contract between the drawer
and the collecting bank.
22.COMMERCIAL LAW; BANKS; BANK DEPOSITS ARE LOANS; RECOVERY OF
AMOUNT DEPOSITED IN CURRENT ACCOUNT GIVEN 6% INTEREST PER ANNUM.
The trial court made PNB and Associated Bank liable with legal interest from March 20, 1981,
the date of extrajudicial demand made by the Province of Tarlac on PNB. The payments to be
made in this case stem from the deposits of the Province of Tarlac in its current account with the
PNB. Bank deposits are considered under the law as loans. Central Bank Circular No. 416
prescribes a twelve percent (12%) interest per annum for loans, forebearance of money, goods or
credits in the absence of express stipulation. Normally, current accounts are likewise interest-
bearing, by express contract, thus excluding them from the coverage of CB Circular No 416. In
this case, however, the actual interest rate, if any, for the current account opened by the Province
of Tarlac with PNB was not given in evidence. Hence, the Court deems it wise to affirm the trial
court's use of the legal interest rate, or six percent (6%) per annum. The interest rate shall be
computed from the date of default, or the date of judicial or extrajudicial demand. The trial court
did not err in granting legal interest from March 20, 1981, the date of extrajudicial demand.
BDO Savings v. Equitable
1.COMMERCIAL LAW; BANKING; PHILIPPINE CLEARING HOUSE CORPORATION
(PCHC); AUTHORITY TO CLEAR CHECKS AND/OR CHECKING ITEMS;
TRANSACTIONS ON NON-NEGOTIABLE CHECKS WITHIN THE AMBIT OF ITS
JURISDICTION. As provided in the articles of incorporation of PCHC its operation extend to
"clearing checks and other clearing items." No doubt transactions on non-negotiable checks are
within the ambit of its jurisdiction. In a previous case, this Court had occasion to rule: "Ubilex
non distinguit nec nos distinguere debemos." There should be no distinction in the application of
a statute where none is indicated for courts are not authorized to distinguish where the law makes
no distinction. They should instead administer the law not as they think it ought to be but as they
find it and without regard to consequences. The participation of the two banks, petitioner and
private respondent, in the clearing operations of PCHC is a manifestation of their submission to
its jurisdiction. Viewing the provisions the conclusion is clear that the PCHC Rules and
Regulations should not be interpreted to be applicable only to checks which are negotiable
instruments but also to non-negotiable instruments, and that the PCHC has jurisdiction over this
case even as the checks subject of this litigation are admittedly non-negotiable.
2.STATUTORY CONSTRUCTION; APPLICATION OF A STATUTE; NO DISTINCTION
WHERE NONE IS INDICATED. The term, check as used in the said Articles of
Incorporation of PCHC can only connote checks in general use in commercial and business
activities. It cannot be conceived to be limited to negotiable checks only. Checks are used
between banks and bankers and their customers, and are designed to facilitate banking
operations. It is of the essence to be payable on demand, because the contract between the banker
and the customer is that the money is needed on demand.
3.COMMERCIAL LAW; BANKING: STAMPING GUARANTEE OF PRIOR
ENDORSEMENT AT THE BACK OF A CHECK EQUIVALENT TO ASSUMPTION OF
WARRANTY OF AN ENDORSER. The petitioner having stamped its guarantee of "all prior
endorsements and/or lack of endorsements" (Exh. A-2 to F-2) is now estopped from claiming
that the checks under consideration are not negotiable instruments. The checks were accepted for
deposit by the petitioner stamping thereon its guarantee, in order that it can clear the said checks
with the respondent bank. By such deliberate and positive attitude of the petiti oner it has for all
legal intents and purposes treated the said checks as negotiable instruments and accordingly
assumed the warranty of the endorser when it stamped its guarantee of prior endorsements at the
back of the checks. It led the said respondent to believe that it was acting as endorser of the
checks and on the strength of this guarantee said respondent cleared the checks in question and
credited the account of the petitioner. Petitioner is now barred from taking an opposite posture by
claiming that the disputed checks are not negotiable instrument.
4.ID.; ID.; ID.; BASES OF THE DOCTRINE OF ESTOPPEL. The Court enunciated in
Philippine National Bank vs. Court of Appeals, a point relevant to the issue when it stated
"the doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and
justice and its purpose is to forbid one to speak against his own act, representations or
commitments to the injury of one to whom they were directed and who reasonably relied
thereon."
5.ID.; ID.; ID.; FORGERY IN ENDORSEMENT; LOSS SUFFERED BY THE COLLECTING
BANK OR LAST ENDORSER. Apropos the matter of forgery in endorsements, this Court
has succinctly emphasized that the collecting bank or last endorser generally suffers the loss
because it has the duty to ascertain the genuineness of all prior endorsements considering that the
act of presenting the check for payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of the endorsements. This is laid
down in the case of PNB vs. National City Bank. In another case, this court held that if the
drawee-bank discovers that the signature of the payee was forged after it has paid the amount of
the check to the holder thereof, it can recover the amount paid from the collecting bank.
6.ID.; ID.; CHECKS: DUTY OF DILIGENCE NOT OWNED BY THE DRAWER TO THE
COLLECTING BANK. It has been enunciated in an American case particularly in American
Exchange National Bank vs. Yorkville Bank that: "the drawer owes no duty of diligence to the
collecting bank (one who had accepted an altered check and had paid over the proceeds to the
depositor) except of seasonably discovering the alteration by a comparison of its returned checks
and check stubs or other equivalent record, and to inform the drawee thereof." Thus We hold that
while the drawer generally owes no duty of diligence to the collecting bank, the law imposes a
duty of diligence on the collecting bank to scrutinize checks deposited with it for t he purpose of
determining their genuineness and regularity. The collecting bank being primarily engaged in
banking holds itself out to the public as the expert and the law holds it to a high standard of
conduct.
BPI vs. CA
1.COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS; CHECKS; EFFECT OF
REPRESENTING OR COLLECTING BANK'S GUARANTEE OF "ALL PRIOR
ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS"; EFFECT OF FORGED
ENDORSEMENTS OF PAYEES. We agreed with the following disquisition of the Regional
Trial Court, to wit: "Anent petitioner's liability on said instruments, this court is in full accord
with the ruling of the PCHC Board of Directors that: In presenting the checks for clearing
and/for payment, the defendant made an express guarantee on the validity of 'all prior
endorsements.' Thus, stamped at the back of the checks are the defendant's clear warranty: ALL
PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without
such warranty, plaintiff would not have paid on the checks. No amount of legal jargon can
reverse the clear meaning of defendant's warranty. As the warranty has proven to be false and
inaccurate, the defendant is liable for any damage arising out of the falsity of its representation.
The principle of estoppel, effectively prevents the defendant from denying liability for any
damage sustained by the plaintiff which, relying upon an action or declaration of the defendant,
paid on the checks. The same principle of estoppel effectively prevents the defendant from
denying the existence of the checks (pp. 10-11, Decision, pp. 43-44, Rollo)" (at pp 194-195) We
also ruled: "Apropos the matter of forgery in endorsements, this Court has presently succinctly
emphasized that the collecting bank or last endorser generally suffers the loss because it has the
duty to ascertain the genuineness of all prior endorsements considering that the act of presenting
the check for payment to the drawee is an assertion that the party making the presentment has
done its duty to ascertain the genuineness of the endorsements. This is laid down in the case of
PNB v. National City Bank (63 Phil. 1711) In another case, this court held that if the drawee-
bank discovers that the signature of the payee was forged after it has paid the amount of the
check to the holder thereof, it can recover the amount paid from the collecting bank. . . . The
point that comes uppermost is whether the drawee bank wa negligent in failing to discover the
alteration or the forgery. . . . The court reproduces with approval the following disquisition of the
PCHC in its decision. 'III. Having Violated Its Warranty On Validity Of All Endorsements,
Collective Bank Cannot Deny Liability To Those Who Relied On Its Warranty. . . . 'The damage
that will result if judgment is not rendered for the plaintiff is irreparable. The collecting bank has
privity with the depositor who is the principal culprit in this case. The defendant knows the
depositor; her address and her history. Depositor is defendant's client. It has taken a risk on its
depositor when it allowed her to collect on the crossed-checks. 'Having accepted the crossed
checks from persons other than the payees, the defendant is guilty of negligence; the risk of
wrongful payment has to be assumed by the defendant." As can be gleaned from the decision,
one of the main considerations in affirming the PCHC's decision was the finding that as between
the drawee bank (Equitable Bank) and the representing or collecting bank (Banco de Oro) the
latter was negligent and thus responsible for undue payment.
2.ID.; ID.; FORGERY; GENERAL RULE; FORGED SIGNATURE WHOLLY
INOPERATIVE AND PAYMENT MADE THROUGH OR UNDER SUCH SIGNATURE
INEFFECTUAL AND DOES NOT DISCHARGE INSTRUMENT; EXCEPTION;
NEGLIGENCE OF PARTY INVOKING FORGERY A RECOGNIZED EXCEPTION TO
GENERAL RULE. Section 23 of the Negotiable Instruments Law states: "When a signature
is forged or made without the authority of the person whose signature it purports to be, it is
wholly inoperative and no right to retain the instrument, or to give discharge therefore, or to
enforce payment thereof, against any party thereto, can be acquired through or under such forged
signature, unless the party against whom it is sought to enforce such right is precluded from
setting up the forgery or want of authority." There are two (2) parts of the provi sion. The first
part states the general rule while the second part states the exception to the general rule. The
general rule is to the effect that a forged signature is "wholly inoperative", and payment made
"through or under such signature" is ineffectual or does not discharge the instrument. The
exception to this rule is when the party relying on the forgery is "precluded from setting up the
forgery or want of authority." In this jurisdiction we recognize negligence of the party invoking
forgery as an exception to the general rule. (See Banco de Oro Savings and Mortgage Bank v.
Equitable Banking Corporation supra; Philippine National Bank v. Quimpo, 158 SCRA 582
[1988]; Philippine National Bank v. Court of Appeals, 25 SCRA 693 [1968]; Republic v.
Equitable Banking Corporation, 10 SCRA 8 [1964]; National Bank v. National City Bank of
New York, 63 Phil. 711 [1936]; San Carlos Milling Co. v. Bank of P.I., 59 Phil. 59 [1933]). In
these cases we determined the rights and liabilities of the parties under a forged endorsement by
looking at the legal effects of the relative negligence of the parties thereto. In the present petition
the payee's names in the two (2) subject checks were forged. Following the general rule, the
checks are "wholly inoperative" and of no effect. However, the underlying circumstances of the
case show that the general rule on forgery is not applicable. The issue as to who between the
parties should bear the loss in the payment of the forged checks necessitates the determination of
the rights and liabilities of the parties involved in the controversy in relation to the forged
checks. The records show that petitioner BPI as drawee bank and respondent CBC as
representing or collecting bank were both negligent resulting in the encashment of the forged
checks.
3.ID.; ID.; ID.; ID.; ID.; ID.; IN CASE AT BAR, DEMANDS OF SUBSTANTIAL JUSTICE
SATISFIED BY ALLOCATING AMOUNT OF LOSS BASED ON COMPARATIVE
NEGLIGENCE OF BOTH BANKS. Banks handle daily transactions involving millions of
pesos. By the very nature of their work the degree of responsibility, care and trustworthiness
expected of their employees and officials is far greater than those of ordinary clerks and
employees. For obvious reasons, the banks are expected to exercise the highest degree of
diligence in the selection and supervision of their employees. In the present case, there is no
question that the banks were negligent in the selection and supervision of their employees. The
Arbitration Committee, the PCHC Board of Directors and the lower courts, however disagree in
the evaluation of the degree of negligence of the banks. While the Arbitration Committee
declared the negligence of respondent CBC graver, the PCHC Board of Directors and the lower
courts declared that petitioner BPI's negligence was graver. To the extent that the degree of
negligence is equated to the proximate cause of the loss, we rule that the issue as to whose
negligence is graver is relevant. No matter how many justifications both banks present to avoid
responsibility, they cannot erase the fact that they were both guilty in not exercising
extraordinary diligence in the selection and supervision of their employees. . . . Both banks were
negligent in the selection and supervision of their employees resulting in the encashment of the
forged checks by an impostor. Both banks were not able to overcome, the presumption of
negligence in the selection and supervision of their employees. It was the gross negligence of the
employees of both banks which resulted in the fraud and the subsequent loss. While it is true that
petitioner BPI's negligence may have been the proximate cause of the loss, respondent CBC's
negligence contributed equally to the success of the impostor in encashing the proceeds of the
forged checks. Under these circumstances, we apply Article 2179 of the Civil Code to the effect
that while respondent CBC may recover its losses, such losses are subject to mitigation by the
courts (See Phoenix Construction, Inc. v. Intermediate Appellate Court, 148 SCRA 353 [1987]).
Considering the comparative negligence of the two (2) banks, we rule that the demands of
substantial justice are satisfied by allocating the loss of P2,413,215.16 and the costs of the
arbitration proceedings in the amount of P7,250.00 and the costs of litigation on a 60-40 ratio.
Conformably with this ruling, no interests and attorney's fees can be awarded to either of the
parties.
4.CIVIL LAW; QUASI-DELICTS; DOCTRINE OF LAST CLEAR CHANCE; DISCUSSED;
CASE AT BAR. We ruled: "The question presented for decision is whether or not the
defendant in maneuvering his car in the manner above described was guilty of negligence such
as gives rise to a civil obligation to repair the damage done; and we are of the opinion that he is
so liable. As the defendant started across the bridge, he had the right to assume that the horse and
rider would pass over to the proper side; but as he moved toward the center of the bridge it was
demonstrated to his eyes that this would not be done, and he must in a moment have perceived
that it was too late for the horse to cross with safety in front of the moving vehicle. In the nature
of things this change of situation occurred while the automobile was yet some distance away;
and from this moment it was no longer within the power of the plaintiff to escape being run down
by going to a place of greater safety. The control of the situation had then passed entirely to the
defendant; and it was his duty to either to bring his car to an immediate stop or, seeing that there
were no other persons on the bridge, to take the other side and pass sufficiently far away from
the horse to avoid the danger of collision. Instead of doing this, the defendant ran straight on
until he was almost upon the horse. He was, we think, deceived into doing this by the fact that
the horse had not yet exhibited fright. But in view of the known nature of horses, there was an
appreciable risk that, if the animal in question was unacquainted with automobiles, he might get
excited and jump under the conditions which here confronted him. When the defendant exposed
the horse and rider to this danger he was, in our opinion, negligent in the eyes of the law. The
test by which to determine the existence of negligence in a particular case may be stated as
follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution
which an ordinarily prudent person would have used in the same situation? If not, then he is
guilty of negligence. . . . It goes without saying that the plaintiff himself was not free from fault,
for he was guilty of antecedent negligence in planting himself on the wrong side of the road. But
as we have already stated, the defendant was also negligent; and in such case the problem always
is to discover which agent is immediately and directly responsible. It will be noted that the
negligent acts of the two parties were not contemporaneous, since the negligence of the
defendant succeeded the negligence of the plaintiff by an appreciable interval. Under these
circumstances the law is that the person who has the last fair chance to avoid the impending
harm and fails to do so is chargeable with the consequences, without reference to the prior
negligence of the other party." Applying these principles, petitioner BPI's reliance on the
doctrine of last clear chance to clear it from liability is not well-taken. CBC had no prior notice
of the fraud perpetrated by BPI's employees on the pretermination of Eligia G. Fernando's money
market placement. Moreover, Fernando is not a depositor of CBC. Hence, a comparison of the
signature of Eligia G. Fernando with that of the impostor Eligia G. Fernando, which respondent
CBC did, could not have resulted in the discovery of the fraud. Hence, unlike in the Picart case
wherein the defendant, had he used reasonable care and caution, would have recognized the risk
he was taking and would have foreseen harm to the horse and the plaintiff but did not,
respondent CBC had no way to discover the fraud at all. In fact the records fail to show that
respondent CBC had knowledge, actual or implied, of the fraud perpetrated by the impostor and
the employees of BPI.

5.ID.; ID.; PROXIMATE CAUSE; DEFINED; DISCUSSED; CASE AT BAR. In the case of
Vda. de Bataclan, et al. v. Medina (102 Phil. 181 [1957]), we had occasion to discuss the
doctrine of proximate cause. There is no question that under the circumstances, the defendant
carrier is liable. The only question is to what degree. The trial court was of the opinion that the
proximate cause of the death of Bataclan was not the overturning of the bus, but rather the fire
that burned the bus, including himself and his co-passengers who were unable to leave it; that at
the time the fire started, Bataclan, though he must have suffered physical injuries, perhaps
serious, was still alive and so damages were awarded, not for his death, but for the physical
injuries suffered by him. We disagree. A satisfactory definition of proximate cause is found in
Volume 38, pages 695-696 of American Jurisprudence, cited by plaintiffs-appellants in their
brief. It is as follows: '. . . that cause, which, in natural and continuous sequence, unbroken by
any efficient intervening cause, produces the injury, and without which the result would not have
occurred. And more comprehensively, 'the proximate legal cause is that acting first and
producing the injury, either immediately or by setting other events in motion, all constituting a
natural and continuous chain of events, each having a close causal connection with its immediate
predecessor, the final event in the chain immediately effecting the injury as natural and probable
result of the cause which first acted, under such circumstances that the person responsible for the
first event should, as an ordinarily prudent and intelligent person, have reasonable ground to
expect at the moment of his act or default that an injury to some person might probably result
therefrom.' It may be that ordinarily, when a passenger bus overturns, and pins down a
passenger, merely causing him physical injuries, if through some event, unexpected and
extraordinary, the overturned bus is set on fire, say, by lightning, or if some highwaymen after
looting the vehicle sets it on fire, and the passenger is burned to death, one might still contend
that the proximate cause of his death was the fire and not the overturning of the vehicle. But in
the present case and under the circumstances obtaining in the same, we do not hesitate to hold
that the proximate cause of the death of Bataclan was the overturning of the bus, this for the
reason that when the vehicle turned not only on its side but completely on its back, the leaking of
the gasoline from the tank was not unnatural or unexpected; that the coming of the men with a
lighted torch was in response to the call for help, made not only by the passengers, but most
probably, by the driver and the conductor themselves, and that because it was very dark (about
2:30 in the morning), the rescuers had to carry a light with them; and coming as they did from a
rural area where lanterns and flashlights were not available, they had to use a torch, the most
handy and available; and what was more natural than that said rescuers should innocently
approach the overturned vehicle to extend the aid and effect the rescue requested from them. In
other words, the coming of the men with the torch was to be expected and was natural sequence
of the overturning of the bus, the trapping of some of its passengers bus, the trapping of some of
its passengers and the call for outside help." Again, applying the doctrine of proximate cause,
petitioner BPI's contention that CBC alone should bear the loss must fail. The gap of one (1) day
between the issuance and delivery of the checks bearing the impostor's name as payee and the
impostor's negotiating the said forged checks by opening an account and depositing the same
with respondent CBC is not controlling. It is not unnatural or unexpected that after taking the
risk of impersonating Eligia G. Fernando with the connivance of BPI's employees, the impostor
would complete her deception by encashing the forged checks. There is, therefore, greater reason
to rule that the proximate cause of the payment of the forged checks by an impostor was due to
the negligence of petitioner BPI.
6.ADMINISTRATIVE LAW; ADMINISTRATIVE RULES AND REGULATIONS; MUST
CONFORM TO AND NOT GO BEYOND TERMS AND PROVISIONS OF BASIC LAW;
CASE AT BAR. petitioner BPI's theory that the present clearing guarantee requirement
imposed on the representing or collecting bank under the PCHC rules and regulations is
independent of the Negotiable Instruments Law is not in order. Another reason why the
petitioner's theory is uncalled for is the fact that the Negotiable Instruments Law (Act No. 2031)
applies to negotiable instruments as defined under section one thereof. Undeniably, the present
case involves checks as defined by and under the coverage of the Negotiable Instruments Law.
To affirm the theory of the petitioner would, therefore, violate the rule that rules and regulations
implementing the law should conform to the law, otherwise the rules and regulations are null and
void. Thus, we held in Shell Philippines, Inc. v. Central Bank of the Philippines (162 SCRA 628
[1988]): ". . . while it is true that under the same law the Central Bank was given the authority to
promulgate rules and regulations to implement the statutory provision in question, we reiterate
the principle that this authority is limited only to carrying into effect what the law being
implemented provides. "In People v. Maceren (79 SCRA 450, 458 and 460), this Court ruled
that: Administrative regulations adopted under legislative authority by a particular department
must be in harmony with the provisions of the law, and should be for the sole purpose of
carrying into effect its general provisions. By such regulations, of course, the law itself cannot be
extended. (U.S. v. Tupasi Molina, supra). An administrative agency cannot amend an act of
Congress (Santos v. Estenzo, 109 Phil. 419, 422; Teoxon v. Members of the Board of
Administrators, L-25619, June 30, 1970, 33 SCRA 585; Manuel v. General Auditing Office, L-
28952, December 29, 1971, 42 SCRA 660; Deluao v. Casteel, L-21906, August 29, 1969, 29
SCRA 350). The rule-making power must be confined to details for regulating the mode or
proceeding to carry i nto effect the law as it has been enacted. The power cannot be extended to
amending or expanding the statutory requirements or to embrace matters not covered by the
statute. Rules that subvert the statute cannot be sanctioned. (University of Santo Tomas v. Board
of Tax Appeals, 93 Phil. 376, 382, citing 12 C.J. 845-46. As to invalid regulations, see Collector
of Internal Revenue v. Villaflor, 69 Phil. 319; Wise & Co v. Meer, 78 Phil. 655, 676, Del Mar v.
Phil. Veterans Administration, L-27299, June 27, 1973, 51 SCRA 340, 349). . . . ". . . The rule or
regulation should be within the scope of the statutory authority granted by the legislature to the
administrative agency (Davis, Administrative Law, p. 194, 197, cited in Victorias Milling Co.,
Inc. v. Social Security Commission, 114 Phil. 555, 558). In case of discrepancy between the
basic law and a rule or regulation issued to implement said law the basic law prevails because
said rule or regulation cannot go beyond the terms and provisions of the basic law (People v.
Lim, 108 Phil. 1091)." (at pp. 633-634).
Gempesaw v. CA
1.MERCANTILE LAW; NEGOTIABLE INSTRUMENTS LAW; CHECKS; DRAWER DUTY
BOUND TO SET UP AN ACCOUNTING SYSTEM AND TO REPORT FORGED
INDORSEMENT TO DRAWEE. While there is no duty resting on the depositor to look for
forged indorsements on his cancelled checks in contrast to a duty imposed upon him to look for
forgeries of his own name, a depositor is under a duty to set up an accounting system and a
business procedure as are reasonably calculated to prevent or render difficult the forgery of
indorsements, particularly by the depositor's own employees. And if the drawer (depositor)
learns that a check drawn by him has been paid under a forged indorsement, the drawer in under
duty promptly to report such fact to the drawee bank. (Britton, Bills and Notes, Sec. 143, pp.
663-664)
2.ID.; ID.; ID.; ID.; DRAWER LOSES RIGHT AGAINST DRAWEE FOR FAILURE TO
DISCOVER FORGERY OR REPORT PROMPTLY SAID FORGERY. For his negligence or
failure either to discover or to report promptly the fact of such forgery to the drawee, the drawer
loses his right against the drawee who has debited his account under the forged indorsement.
(City of New York vs. Bronx County Trust Co., 261 N.Y. 64, 184 N.E. 495 (1933); Detroit
Piston Ring Co. vs. Wayne County & Home Savings Bank, 252 Mich. 163, 233 N.W. 185
[1930]; C.E. Erickson Co. vs. Iowa Nat. Bank, 211 Iowa 495, 230 N.W. 342 [1930] In other
words, he is precluded from using forgery as a basis for his claim for recrediting of his account.
3.ID.; ID.; ISSUANCE OF INSTRUMENT, CONSTRUED. Every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument to the payee for the
purpose of giving effect thereto. (NIL, Sec. 16) The first delivery of the instrument, complete in
form, to the payee who takes it as a holder, is called issuance of the instrument. Without the
initial delivery of the instrument from the drawer of the check to the payee, there can be no valid
and binding contract and no liability on the instrument.
4.ID.; ID.; CHECKS; DRAWEE BANK WHO PAID A CHECK ON A FORGED
INDORSEMENT GENERALLY CANNOT CHARGE THE DRAWER'S ACCOUNT;
EXCEPTION. As a rule, a drawee bank who has paid a check on which an indorsement has
been forged cannot charge the drawer's account for the amount of said check. An exception to
this rule is where the drawer is guilty of such negligence which causes the bank to honor such a
check or checks.
5.ID.; ID.; ID.; FORGED INDORSEMENT; DRAWER CAN NOT DEMAND FROM
DRAWEE BANK TO RECREDIT HER ACCOUNT WHERE HER NEGLIGENCE WAS THE
PROXIMATE CAUSE OF HER LOSS; CASE AT BAR. The petitioner failed to examine her
records with reasonable diligence whether before she signed the checks or after receiving her
bank statements. Had the petitioner examined her records more carefully, particularly the invoice
receipts, cancelled checks, check book stubs, and had she compared the sums written as amounts
payable in the eighty-two (82) checks with the pertinent sales invoices, she would have easily
discovered that in some checks, the amounts did not tally with those appearing in the sales
invoices. Had she noticed these discrepancies, she should not have signed those checks, and
should have conducted an inquiry as to the reason for the irregular entries. Likewise, had
petitioner been more vigilant in going over her current account by taking careful note of the daily
reports made by respondent drawee Bank on her issued checks, or at least made random scrutiny
of her cancelled checks returned by respondent drawee Bank at the close of each month, she
could have easily discovered the fraud being perpetrated by Alicia Galang, and could have
reported the matter to the respondent drawee Bank. The respondent drawee Bank then could
have taken immediate steps to prevent further commission of such fraud. Thus, petitioner's
negligence was the proximate cause of her loss. And since it was her negligence which caused
the respondent drawee Bank to honor the forged checks or prevented it from recovering the
amount it had already paid on the checks, petitioner cannot now complain should the bank refuse
to recredit her account with the amount of such checks. Under Section 23 of the NIL, she is now
precluded from using the forgery to prevent the bank's debiting of her account.
6.ID.; ID.; ID.; RESTRICTIVE INDORSEMENT; PROHIBITION TO TRANSFER OR
NEGOTIATE MUST BE WRITTEN IN EXPRESS WORDS. Under the NIL, the only kind
of indorsement which stops the further negotiation of an instrument is a restrictive indorsement
which prohibits the further negotiation thereof. In this kind of restrictive indorsement, the
prohibition to transfer or negotiate must be written in express words at the back of the
instrument, so that any subsequent party may be forewarned that it ceases to be negotiable.
However, the restrictive indorsee acquires the right to receive payment and bring any action
thereon as any indorser, but he can no longer transfer his rights as such indorsee where the form
of the indorsement does not authorize him to do so.
7.CIVIL LAW; OBLIGATIONS AND CONTRACTS; DRAWEE BANK WHICH
CONTRIBUTED TO THE LOSS INCURRED BY THE DRAWER BY ITS OWN
VIOLATION OF INTERNAL RULES ADJUDGED LIABLE TO SHARE THE LOSS; CASE
AT BAR. There is no question that there is a contractual relation between petitioner as
depositor (obligee) and the respondent drawee bank as the obligor. In the performance of its
obligation, the drawee bank is bound by its internal banking rules and regulations which form
part of any contract it enters into with any of its depositors. When it violated its internal rules
that second endorsements are not to be accepted without the approval of its branch managers and
it did accept the same upon the mere approval of Boon, a chief accountant, it contravened the
tenor of its obligation at the very least, if it were not actually guilty of fraud or negligence.
Furthermore, the fact that the respondent drawee Bank did not discover the irregularity with
respect to the acceptance of checks with second indorsement for deposit even without the
approval of the branch manager despite periodic inspection conducted by a team of auditors from
the main office constitutes negligence on the part of the bank in carrying out its obligations to its
depositors. We hold that banking business is so impressed with public interests where the trust
and confidence of the public in general is of paramount importance such that the appropriate
standard of diligence must be a high degree of diligence, if not the utmost diligence. Surely,
respondent drawee Bank cannot claim it exercised such a degree of diligence that is required of
it. There is no way We can allow it now to escape liability for such negligence. Its liability as
obligor is not merely vicarious but primary wherein the defense of exercise of due diligence in
the selection and supervision of its employees is of no moment. Premises considered, respondent
drawee Bank is adjudged liable to share the loss with the petitioner on a fifty-fifty ratio in
accordance with Article 1172.
Great Eastern Life v. HSBC
1. LIABILITY OF BANKS ON THE INDORSEMENT OF THE PAYEE OF A
CHECK. Where an insurance company drew its check for P2,000 on the H. & S. B.
Corporation payable to the order of M, and a third person fraudulently obtained possession of
the check and forged M's signature, as an endorser, and then personally endorsed and
presented it to the P. N. Bank, by which it was honored and the amount of the check placed
to his credit, and on the next day the P. N. Bank endorsed the check to the H. & S. B
Corporation, which paid it and charged the amount of the check to the insurance company;
Held: That the H. & S. B. Corporation was liable to the insurance company for the amount of
the check, and that the P. N. Bank was in turn liable to the H. & S. B. Corporation.
2. THE ONLY REMEDY OF A BANK PAYING A CHECK TO A PERSON WHO
HAS FORGED THE NAME OF THE PAYEE IS AGAINST THE FORGER. Where a
check is drawn payable to the order of one person and is presented to a bank by another and
purports upon its face to have been duly endorsed by the payee of the check, it is the duty of
the bank to know that the check was duly endorsed by the original payee, and where the bank
pays the amount of the check to a third person, who has forged the signature of the payee, the
loss falls upon the bank who cashed the check, and its only remedy is against the person to
whom it paid the money.
Jai Alai v. BPI
SYNOPSIS
Petitioner deposited in its current account with respondent bank several checks with a total face
value of P8,030.58, all acquired from Antonio J. Ramirez, a regular bettor at the jai-alai games
and a sale agent of the Inter-Island Gas Service, Inc., the payee of the checks. The deposits were
all temporarily credited to petitioner's account in accordance with the clause printed on the
bank's deposit slip. Subsequently, Ramirez resigned and after the checks had been submitted to
inter-bank clearing, the Inter-Island Gas discovered that all the indorsement made on the cheeks
purportedly by its cashiers, as well as the rubber stamp impression thereon reading "Inter-Island
Gas Service, Inc.", were forgeries. It informed petitioner, the respondent, the drawers and the
drawee banks of the said checks and forgeries and filed a criminal complaint against its former
employee. In view of these circumstances, the respondent Bank debited the petitioner's current
account and forwarded to the latter the checks containing the forged indorsements, which
petitioner refused to accept. Later, petitioner drew against its current account a check for
P135,000.00. This check was dishonored by respondent as its records showed that petitioner's
balance after netting out the value of the checks with the forged indorsement, was insufficient to
cover the value of the check drawn. A complaint was filed by petitioner with t he Court of First
Instance of Manila. The same was dismissed by the said court after due trial, as well as by the
Court of Appeals, on appeal. Hence, this petition for review.
The Supreme Court ruled that respondent acted within legal bounds when it debited petitioner's
account; that the payments made by the drawee banks to the respondent on account of the checks
with forged indorsements were ineffective; that on account thereof, no creditor-debtor
relationship was created between the parties; that petitioner was grossly recreant in accepting the
checks in question from Ramirez without making any inquiry as to authority to exchange checks
belonging to the payee-corporation; and that petitioner, in indorsing the said checks when it
deposited them with respondent, guaranteed the genuineness of all prior indorsement thereon so
that the respondent, which relied upon its warranty, cannot be held liable for the resulting loss.
Judgment affirmed
SYLLABUS
1.NEGOTIABLE INSTRUMENT; CHECKS; FORGED INDORSEMENTS EFFECT. A
forged signature in a negotiable instrument makes it wholly inoperative and no right to discharge
it or enforce its payment can be acquired through or under the forged signature except against a
party who cannot invoke the forgery.
2.ID.; ID.; ID.; NO RELATION OF CREDITOR-DEBTOR BETWEEN THE PARTIES
CREATED EVEN IF DEPOSITARY OR COLLECTING BANK HAD ALREADY
COLLECTED THE PROCEEDS OF THE CHECKS WHEN IT DEBITED PETITIONER'S
ACCOUNT; REASON. Where the indorsement made on the checks were forged prior to their
delivery to depositor, the payments made by the drawee-banks to the collecting bank on account
of the said checks were ineffective. Such being the case, the relationship of creditor and debtor
between the depositor and the depository had not been validly effected, the checks not having
properly and legitimately converted into cash.
3.ID.; ID.; ID.; COLLECTING BANKS HAS DUTY TO REIMBURSE TO DRAWEE-BANKS
THE VALUE OF CHECKS CONTAINING FORGED INDORSEMENT; RULING IN THE
CASE OF GREAT EASTERN LIFE INSURANCE CO. vs. HONGKONG & SHANGHAI
BANK. In Great Eastern Life Ins. Co. vs. Hongkong & Shanghai Bank, 43 Phil. 678 (1992),
the Court ruled that it is the obligation of the collecting bank to reimburse the drawee-bank the
value of the checks subsequently found to contain the forged indorsement of the payee. The
reason is that the bank with which the check was deposited has no right to pay the sum stated
therein to the forger "or to anyone else upon a forged signature." "It was its duty to know," said
the Court, "that (the payee's) endorsement was genuine before cashing the check. " The depositor
must in turn shoulder the loss of the amounts which the respondent, as its collecting agent, had
no reimburse to the drawee-banks.
4.ID.; ID.; ACCEPTANCE OF CHECKS INDORSED BY AN AGENT; RULING IN THE
CASE OF INSULAR DRUG CO. vs. NATIONAL. In Insular Drug Co. vs. National, 58 Phil.
685 (1933), the Court made the pronouncement that ". . .The right of an agent to indorse
commercial paper is a very responsible power and will not be lightly inferred. A salesman with
authority to collect money belonging to his principal does not have the implied authority to
indorse checks received in payment. Any person taking checks made payable to a corporation
which can act by agents, does so at his peril, and must abide by the consequences if the agent
who endorses the same is without authority."
5.ID.; ID.; LIABILITY OF AN INDORSER; NO LOSS TO BE SUFFERED BY A BANK
WHO RELIED ON INDORSER'S WARRANTY. Under Section 67 of the Negotiable
Instruments Law, "Where a person places his indorsement on an instrument negotiable by
delivery he incurs all the liability of an indorser," and under Section 66 of the same statute a
general indorser warrants that the instrument "is genuine and in all respects what it purports to
be." Where the depositor indorsed the checks with forged indorsement when it deposited them
with the collecting bank, the former as an endorser guaranteed the genuineness of all prior
indorsement thereon. The collecting bank which relied upon this warranty cannot be held liable
for the resulting loss.
6.ID.; ID.; FORGED CHECKS; TRANSFER OF FUNDS FROM DRAWEE TO
COLLECTING BANK; APPLICATION OF ART. 2154 OF THE CIVIL CODE. The transfer
by the drawee-banks of funds to the collecting bank on account of forged checks would be
ineffectual when made under the mistaken and valid assumption that the indorsement of the
payee thereon were genuine. Under Article 2154 of the New Civil Code "If something is
received when there is no right to demand it and it was unduly delivered through mistake, the
obligation to return it arises, " By virtue thereof, there can be no valid payment of money by
drawee-banks to the collecting bank on account of forged checks.
Manila Lighter Trans v. CA
REMEDIAL LAW; APPEAL; SUPREME COURT DECIDES ONLY ISSUES INVOLVING QUESTIONS OF
LAW. The instant petition for review must necessarily fail. The issues raised therein are
factual. The main issue of petitioner's negligence had already been determined by the trial
court against petitioner and affirmed by the Court of Appeals after examining the evidence in
the records. The Supreme Court decides appeals which only involve questions of law. It is not
the function of the Supreme Court to analyze or weigh the evidence all over again, its
jurisdiction being limited to resolving errors of law that might have been committed by the
lower court. (Dihiansan vs. Court of Appeals, 153 SCRA 712; Francisco vs. Mandi, 152 SCRA 711;
Director of Lands vs. Funtilar, 142 SCRA 57).
Republic vs. Ebrada
SYNOPSIS
A check with a face value of P1,246.08 was issued to one Martin Lorenzo who turned out to
have been dead almost eleven years before it was issued. It was encashed by Mauricia Ebrada at
the Republic Bank's main office at the Escolta. Informing the Bank that the payee's (Lorenzo)
indorsement on the reverse side of the check was a forgery, the Bureau of Treasury requested the
Bank to refund the amount. The Bank sued Mauricia Ebrada before the city court when she
refused to return the money. The court ruled for the Bank, so the case was elevated to the Court
of First Instance which likewise rendered an adverse decision against Mauricia Ebrada. An
appeal was filed.
The Supreme Court upheld the lower court. Although Mauricia Ebrada was not the author of the
forgery, as the last indorser of the check, she warranted good title to it. The negotiation from
Martin Lorenzo, the original payee, to Ramon Lorenzo is of no effect but the negotiation from
Ramon Lorenzo to Adelaida Dominguez and from her to Mauricia Ebrada who did not know of
the forgery is valid and enforceable. The bank can recover from her the money paid on the
forged check.
Judgment affirmed.
SYLLABUS
1.NEGOTIABLE INSTRUMENT; CHECK; FORGED INDORSEMENT; EFFECT. Where
the signature on a negotiable instrument is forged, the negotiation of the check is without force
of effect. But the existence of the forged signature therein will not render void all the other
negotiations of the check with respect to the other parties whose signatures are genuine. It is only
the negotiation predicated on the forged indorsement that should be declared inoperative.
2.ID.; ID.; ID.; DRAWEE BANK SUFFERED THE LOSS BUT RECOVERY FROM THE
ONE WHO ENCASHED THE CHECK AVAILABLE. Where after the drawee bank has paid
the amount of the check to the holder thereof, it was discovered that the signature of the payee
was forged, the bank can still recover from the one who encashed the check. In the case of Great
Eastern Life Insurance Company vs. Hongkong and Shanghai Banking Corporation, 43 Phil.
678, it was held "where a check is drawn payable to the order of one person and is presented to a
bank by another and purports upon its face to have been duly indorsed by the payee of the check,
it is the duty of the bank to know that the check was duly indorsed by the original payee, and
where the Bank pays the amount of the check to a third person, who has forged the signature of
the payee, the loss falls upon the bank who cashed the check, and its only remedy is against the
person to whom it paid the money."
3.ID.; ID.; ID.; DRAWEE BANK NOT DUTY BOUND TO ASCERTAIN GENUINESS OF
SIGNATURES OF PAYEE OR INDORSERS. It is not supposed to be the duty of a drawee
bank to ascertain whether the signatures of the payee or indorsers are genuine or not. This is
because the indorser is supposed to warrant to the drawee that the signatures of the payee and
previous indorsers are genuine, warranty not extending only to holders in due course.
4.ID.; ID.; ID.; PURCHASER OF CHECK OR DRAFT BOUND TO ASCERTAIN
GENUINENESS OF INSTRUMENT. One who purchases a check or draft is bound to satisfy
himself that the paper is genuine and that by indorsing it or presenting it for payment or putting it
into circulation before presentation he impliedly asserts that he has performed his duty, and the
drawee who has paid the forged check, without actual negligence on his part, may recover the
money paid from such negligent purchaser. In such cases the recovery is permitted because
although the drawee was in a way negligent in failing to detect the forgery, yet if the encasher of
the check had performed his duty, the forgery would in all probability, have been detected and
the fraud defeated.
5.ID.; ID.; ID.; LIABILITY OF ACCOMMODATION PARTY. Although the one to whom
the Bank paid the check was not proven to be the author of the supposed forgery, as last indorser
of the check, she has warranted that she has good title to it even if in fact she did not have it
because the payee of the check was already dead eleven years before the check was issued. The
fact that immediately after receiving the cash proceeds of the check in question from the drawee
bank she immediately turned over said amount to another party, who in turn handed the amount
to somebody else on the same date would not exempt her from liability because by doing so, she
acted as an accommodation party in the check for which she is also liable under Section 29 of the
Negotiable Instrument Law.
Westmont Bank v. Ong
SYNOPSIS
Respondent, a current account depositor with petitioner bank, was debited the amount
of P1,754,787.50 representing the face value of two Pacific Banking Corporation's Manager's
checks containing respondent's forged signature. These two checks were deposited by
respondent's friend, Paciano Tanlimco, in his account with petitioner bank which accepted
and credited both checks without verifying the signature of respondent. Tanlimco
immediately withdrew the money. Respondent sought the help of Tanlimco's family to
recover the amount, but to no avail. Hence, he filed the collection case almost five months
from the discovery of the fraud. The trial court ruled in favor of respondent. It found that
petitioner bank was grossly negligent in encashing the checks without verifying the signature
of its own depositor, herein respondent. It ordered petitioner to pay the amount of the
manager's checks with legal interest and moral and exemplary damages. The Court of
Appeals affirmed the trial court's decision. Hence, the present recourse, petitioner assailing,
among others, that respondent was guilty of laches.
It was held that a forged signature or one made without authority is inoperative and
ineffectual under Section 24 of the Negotiable Instruments Law; that a collecting bank has
the legal duty to ascertain that the payee's endorsement was genuine before cashing the check
and is liable to the payee and must bear the loss for payment made on a forged signature; that
findings of the trial court are binding and conclusive on appeal; that there is no laches where
a party filed the case only after exhausting possibilities of settling the case amicably.
SYLLABUS
1.REMEDIAL LAW; ACTIONS; CAUSE OF ACTION, DEFINED. A cause of action is the
act or omission by which a party violates a right of another. The essential elements of a cause of
action are: (a) a legal right or rights of the plaintiff, (b) a correlative obligation of the defendant,
and (c) an act or omission of the defendant in violation of said legal right.
2.ID.; ID.; ID.; CASE AT BAR. The complaint filed before the trial court expressly alleged
respondent's right as payee of the manager's checks to receive the amount involved, petitioner's
correlative duty as collecting bank to ensure that the amount gets to the rightful payee or his
order, and a breach of that duty because of a blatant act of negligence on the part of petitioner
which violated respondent's rights.
3.MERCANTILE LAW; NEGOTIABLE INSTRUMENTS LAW; CHECKS; FORGED
INDORSEMENT; COLLECTING BANK LIABLE TO PAYEE. Since the signature of the
payee, in the case at bar, was forged to make it appear that he had made an indorsement in favor
of the forger, such signature should be deemed as inoperative and ineffectual. Petitioner, as the
collecting bank, grossly erred in making payment by virtue of said forged signature. The payee,
herein respondent, should therefore be allowed to recover from the collecting bank. The
collecting bank is liable to the payee and must bear the loss because it is its legal duty to
ascertain that the payee's endorsement was genuine before cashing the check. As a general rule, a
bank or corporation who has obtained possession of a check upon an unauthorized or forged
indorsement of the payee's signature and who collects the amount of the check from the drawee,
is liable for the proceeds thereof to the payee or other owner, notwithstanding that the amount
has been paid to the person from whom the check was obtained.
4.ID.; ID.; ID.; ID.; ID.; RATIONALE. The theory of the rule is that the possession of the
check on the forged or unauthorized indorsement is wrongful, and when the money had been
collected on the check, the bank or other person or corporation can be held as for moneys had
and received, and the proceeds are held for the rightful owners who may recover them. The
position of the bank taking the check on the forged or unauthorized indorsement is the same as if
it had taken the check and collected the money without indorsement at all and the act of the bank
amounts to conversion of the check. TaEIcS
5.REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF THE TRIAL COURT, BINDING
ON APPEAL. Banks are engaged in a business impressed with public interest, and it is their
duty to protect in return their many clients and depositors who transact business with them. They
have the obligation to treat their client's account meticulously and with the highest degree of
care, considering the fiduciary nature of their relationship. The diligence required of banks,
therefore, is more than that of a good father of a family. In the present case, petitioner was held
to be grossly negligent in performing its duties. Given the substantial face value of the two
checks, totalling P1,754,787.50, and the fact that they were being deposited by a person not the
payee, the very least defendant bank should have done, as any reasonable prudent man would
have done, was to verify the genuineness of the indorsements thereon. The Court cannot help but
note that had defendant conducted even the most cursory comparison with plaintiff's specimen
signatures in its files (Exhibit "L-1" and "M-1") it would have at once seen that the alleged
indorsements were falsified and were not those of the plaintiff-payee. However, defendant
apparently failed to make such a verification or, what is worse did so but, chose to disregard the
obvious dissimilarity of the signatures. The first omission makes it guilty of gross negligence;
the second of bad faith. In either case, defendant is liable to plaintiff for the proceeds of the
checks in question. These findings are binding and conclusive on the appellate and the reviewing
courts.
6.CIVIL LAW; LACHES; DEFINED. Laches may be defined as the failure or neglect for an
unreasonable and unexplained length of time, to do that which, by exercising due diligence,
could or should have been done earlier. It is negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled thereto has either abandoned or
declined to assert it. It concerns itself with whether or not by reason of long inaction or
inexcusable neglect, a person claiming a right should be barred from asserting the same, because
to allow him to do so would be unjust to the person against whom such right is sought to be
enforced.
7.ID.; ID.; NEGATED WHERE CASE WAS FILED ONLY AFTER DEPOSITOR HAD
EXHAUSTED POSSIBILITIES SETTLING THE MATTER AMICABLY. In the case at bar,
it cannot be said that respondent sat on his rights. He immediately acted after knowing of the
forgery by proceeding to seek help from the Tanlimco family and later the Central Bank, to
remedy the situation and recover his money from the forger, Paciano Tanlimco. Only after he
had exhausted possibilities of settling the matter amicably with the family of Tanlimco and
through the CB, about five months after the unlawful transaction took place, did he resort to
making the demand upon the petitioner and eventually before the court for recovery of the
money value of the two checks. These acts cannot be construed as undue delay in or
abandonment of the assertion of his rights.
8.ID.; ID.; NOT AVAILABLE TO PARTY WHICH HAD THE LAST CLEAR CHANCE TO
STOP THE FRAUDULENT ENCASHMENT OF SUBJECT CHECKS. Moreover, the claim
of petitioner that respondent should be barred by laches is clearly a vain attempt to deflect
responsibility for its negligent act. As explained by the appellate court, it is petitioner which had
the last clear chance to stop the fraudulent encashment of the subject checks had it exercised due
diligence and followed the proper and regular banking procedures in clearing checks. As we had
earlier ruled, the one who had the last clear opportunity to avoid the impending harm but failed
to do so is chargeable with the consequences thereof.
Montinola v. PNB
1.NEGOTIABLE INSTRUMENT; MATERIAL ALTERATION WHICH
DISCHARGES THE INSTRUMENT. On May 2, 1942, L in his capacity as Provincial
Treasurer of Misamis Oriental as drawer, issued a check to R in the sum of P100,000, on the
Philippines National Bank as drawee. R sold P30,000 of the check to m for P90,000 Japanese
Military notes, of which only P45,000 was paid by M. The writing made by R at the back of
the check was to the effect that he was assigning only P30,000 of the value of the document
with an instruction to the bank to pay P30,000 to m and to deposit the balance to R's credit.
This writing was, however, mysteriously obliterated and in its place, a supposed indorsement
appearing on the back of the check was made. At the time of the transfer of this check to M
about the last days of December, 1944 or the first days of January, 1845, the check was long
overdue by about 2-1/2 years. In August, 1947, M instituted an action against the Philippine
National Bank and the Provincial Treasurer of Misamis Oriental to collect the sum of
P100,000, the amount of the aforesaid check. There now appears on the face of said check
the words in parenthesis "Agent, Phil. National Bank" under the signature of L purportedly
showing that L issued the check as agent of the Philippine National Bank. Held: The words
"Agent, Phil. National Bank" now appearing on the face of the check were added or placed in
the instrument after it was issued by the Provincial Treasurer L to R. The check was issued
by only as Provincial Treasure and as an official of the Government, which was under
obligation to provide the USAFE with advance funds, and not as agent of the bank, which
had no such obligation. The addition of those words was made after the check had been
transferred by R to M. The insertion of the words "Agent, Phil. National Bank," which
converts the bank from a mere drawee to a drawer and therefore changes its liability,
constitutes a material alteration of the instrument without the consent of the parties liable
thereon, and so discharges the instrument.
2.ID.; INDORSEMENT OF PART OF AMOUNT PAYABLE, IS NOT
NEGOTIATION OF INSTRUMENT BUT MAY BE REGARDED AS MERE
ASSIGNMENT. Where the indorsement of a check is only for a part of the amount
payable, it is not legally negotiated within the meaning of section 32 of the Negotiable
Instruments Law which provides that "the indorsement must be an indorsement of the entire
instrument. An indorsement which purports to transfer to the indorse a part only of the
amount payable does not operate as a negotiation of the instrument." M may, therefore, not
be regarded as an indorse. At most he may be regarded as a mere assignee of the P30,000
sold to him by R, in which case, as such Provincial Treasurer of Misamis Oriental against R.
3.ID.; HOLDER IN DUE COURSE; HOLDER WHO HAS TAKEN THE
INSTRUMENT AFTER IT WAS LONG OVERDUE; ASSIGNEE IS NOT A PAYEE.
Neither can M de considered as a holder in due course because section 52 of the Negotiable
Instruments Law defines a holder in due course as a holder who taken the instrument under
certain conditions, one of which is that he became the holder before it was overdue. When M
received the check, it was long overdue. And, M is not even a holder because section 191 of
the same law defines holder as the payee or indorse of a bill or note and m is not a payee.
Neither is he an indorse, for being only indorse he is considered merely as an assignee.
4.ID.; INSTRUMENT ISSUED TO DISTRIBUTION OFFICER OF USAFE, WHO
HAS NO RIGHT TO INDORSE IT PERSONALLY. Where an instrument was issued to
R not as a person but as the disbursing officer of the USAFE, he has no right to indorse the
instrument personally and if he does, the negotiation constitutes a breach of trust, and he
transfers nothing to the indorse.
5.QUESTIONED DOCUMENTS; DISCREPANCIES BETWEEN PHOTOSTATIC
COPY TAKEN BEFORE TEARING AND BURNING OF CHECK AND PRESENT
CONDITION THEREOF SHOW WORDS IN QUESTION WERE INSERTED AFTER
SAID TEARING AND BURNING. Recovery on a check, Exhibit A, depended on the
presence of the words "Agent, Phil. National Bank" under the signature of L, at time Exhibit
A was drawn. But the photostatic copy, Exhibit B, admittedly taken before Exhibit A was
burned and torn, showed marked discrepancies between Exhibits A and B as to the position
of the words in question in relation to the words "Provincial Treasurer". Held: The inference
is plain that the words "Agent, Phil. National Bank" were inserted after the check was burned
and torn.
PNB v. CA
1.COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS; MATERIAL ALTERATION,
DEFINED. An alteration is said to be material if it alters the effect of the instrument. It means
an unauthorized change in an instrument that purports to modify in any respect the obligation of
a party or an unauthorized addition of words or numbers or other changes to an incomplete
instrument relating to the obligation of a party. In other words, a material alteration is one which
changes the items which are required to be stated under Section 1 of the Negotiable Instruments
Law.
2.ID.; ID.; IMMATERIAL ALTERATION; EFFECT ON THE INSTRUMENT. In his book
entitled "Pandect of Commercial Law and Jurisprudence," Justice Jose C. Vitug opines that "an
innocent alteration (generally, changes on items other than those required to be stated under Sec.
1, N.I.L.) and spoliation (alterations done by a stranger) will not avoid the instrument, but the
holder may enforce it only according to its original tenor.
3.ID.; ID.; ID.; PRESENT IN CASE AT BAR. The case at bench is unique in the sense that
what was altered is the serial number of the check in question, an item which, it can readily be
observed, is not an essential requisite for negotiability under Section 1 of the Negotiable
Instruments Law. The aforementioned alteration did not change the relations between the parties.
The name of the drawer and the drawee were not altered. The intended payee was the same. The
sum of money due to the payee remained the same. The check's serial number is not the sole
indication of its origin. As succinctly found by the Court of Appeals, the name of the government
agency which issued the subject check was prominently printed therein. The check's issuer was
therefore sufficiently identified, rendering the referral to the serial number redundant and
inconsequential. Petitioner, thus cannot refuse to accept the check in question on the ground that
the serial number was altered, the same being an immaterial or innocent one.
4.CIVIL LAW; DAMAGES; ATTORNEY'S FEES; AWARD THEREOF DEMANDS
FACTUAL, LEGAL AND EQUITABLE JUSTIFICATION. The award of attorney's fees lies
within the discretion of the court and depends upon the circumstances of each case. However, the
discretion of the court to award attorney's fees under Article 2208 of the Civil Code of the
Philippines demands factual, legal and equitable justification, without which the award is a
conclusion without a premise and improperly left to speculation and conjecture. It becomes a
violation of the proscription against the imposition of a penalty on the right to litigate (Universal
Shipping Lines, Inc. v. Intermediate Appellate Court, 188 SCRA 170 [1990]). The reason for the
award must be stated in the text of the court's decision. If it is stated only in the dispositive
portion of the decision, the same shall be disallowed. As to the award of attorney's fees being an
exception rather than the rule, it is necessary for the court to make findings of fact and law that
would bring the case within the exception and justify the grant of the award (Refractories
Corporation of the Philippines v. Intermediate Appellate Court, 176 SCRA 539).
Republic Bank v. CA
1.COMMERCIAL LAW; BANKING LAWS; 24-HOUR CLEARING HOUSE RULE APPLIES
TO COMMERCIAL BANKS; FAILURE OF DRAWEE BANK TO COMPLY WITH RULE
ABSOLVES COLLECTING BANKS. The 24-hour clearing house rule is a valid rule
applicable to commercial banks (Republic vs. Equitable Banking Corporation, 10 SCRA 8
[1964]; Metropolitan Bank & Trust Co. vs. First National City Bank, 118 SCRA 537). It is true
that when an endorsement is forged, the collecting bank or last endorser, as a general rule, bears
the loss (Banco de Oro Savings & Mortgage Bank vs. Equitable Banking Corp., 157 SCRA 188).
But the unqualified endorsement of the collecting bank on the check should be read together with
the 24-hour regulation on clearing house operation (Metropolitan Bank & Trust Co. vs. First
National City Bank, supra). Thus, when the drawee bank fails to return a forged or altered check
to the collecting bank within the 24-hour clearing period, the collecting bank is absolved from
liability.
2.ID.; ID.; ID.; ID.; REMEDY OF DRAWEE BANK IS AGAINST PARTY RESPONSIBLE
FOR FORGERY OR ALTERATION. Every bank that issues checks for the use of its
customers should know whether or not the drawer's signature thereon is genuine, whether there
are sufficient funds in the drawer's account to cover checks issued, and i t should be able to detect
alterations, erasures, superimpositions or intercalations thereon, for these instruments are
prepared, printed and issued by itself, it has control of the drawer's account, and it is supposed to
be familiar with the drawer's signature. It should possess appropriate detecting devices for
uncovering forgeries and/or alterations on these instruments. Unless an alteration is attributable
to the fault or negligence of the drawer himself, such as when he leaves spaces on the check
which would allow the fraudulent insertion of additional numerals in the amount appearing
thereon, the remedy of the drawee bank that negligently clears a forged and/or altered check for
payment is against the party responsible for the forgery or alteration (Hongkong & Shanghai
Banking Corp. vs. People's Bank & Trust Co., 35 SCRA 140), otherwise, it bears the loss. It may
not charge the amount so paid to the account of the drawer, if the latter was free from blame, nor
recover it from the collecting bank if the latter made payment after proper clearance from the
drawee.
Pineda v. Dela Rama
1.COMMERCIAL LAW; NEGOTIABLE. INSTRUMENTS LAW; SECTION 24;
CONSIDERATION; PRESUMPTION THAT NEGOTIABLE INSTRUMENT IS ISSUED FOR
VALID CONSIDERATION IS ONLY PRIMA FACIE. The Court of Appeals' reliance on
Section 24 of the Negotiable Instruments Law is misplaced. The presumption that a negotiable
instrument is issued for a valuable consideration is only prima facie. It can be rebutted by proof
to the contrary.
2.CIVIL LAW; CONTRACTS; VOID CONTRACT; PROMISSORY NOTE EXECUTED FOR
AN ILLEGAL CONSIDERATION. The consideration for the promissory note to
influence public officers in the performance of their duties is contrary to law and public
policy. The promissory note is void ab initio and no cause of action for the collection cases can
arise from it.
Travel-on v. CA
1.COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; PRESUMPTION OF
CONSIDERATION; RULE. It is important to stress that a check which is regular on its face
is deemed prima facie to have been issued for a valuable consideration and every person whose
signature appears thereon is deemed to have become a party thereto for value. Thus, the mere
introduction of the instrument sued on in evidence prima facie entitles the plaintiff to recovery.
Further, the rule is quite settled that a negotiable instrument is presumed to have been given or
indorsed for a sufficient consideration unless otherwise contradicted and overcome by other
competent evidence.
2.ID.; ID.; ID.; BURDEN OF PROOF TO REBUT THEREOF; LIES WITH THE DRAWER;
CASE AT BAR. In the case at bar, the Court of Appeals, contrary to these established rules,
placed the burden of proving the existence of valuable consideration upon petitioner. This cannot
be countenanced; it was up to private respondent to show that he had indeed issued the checks
without sufficient consideration. The Court considers that private respondent was unable to rebut
satisfactorily this legal presumption. It must also be noted that those checks were i ssued
immediately after a letter demanding payment had been sent to private respondent by petitioner
Travel-On.
3.ID.; ID.; ACCOMMODATION TRANSACTION; NOT ESTABLISHED IN CASE AT BAR;
REASONS THEREFOR. We are unable to accept the Court of Appeals' conclusion that the
checks here involved were issued for "accommodation" and that accordingly private respondent
maker of those checks was not liable thereon to petitioner payee of those checks. In the first
place, while the Negotiable Instruments Law does refer to accommodation transactions, no such
transaction was here shown. In accommodation transactions recognized by the Negotiable
Instruments Law, an accommodating party lends his credit to the accommodated party, by
issuing or indorsing a check which is held by a payee or indorsee as a holder in due course, who
gave full value therefor to the accommodated party. The latter, in other words, receives or
realizes full value which the accommodated party then must repay to the accommodating party,
unless of course the accommodating party intended to make a donation to the accommodated
party. But the accommodating party is bound on the check to the holder in due course who is
necessarily a third party and is not the accommodated party. Having issued or indorsed the
check, the accommodating party has warranted to the holder in due course that he will pay the
same according to its tenor.
4.ID.; ID.; ID.; LIABILITY OF DRAWER IN THE ABSENCE OF PROOF THEREOF; CASE
AT BAR. In the case at bar, Travel-On was payee of all six (6) checks; it presented these
checks for payment at the drawee bank but the checks bounced. Travel-On obviously was not an
accommodated party; it realized no value on the checks which bounced. Travel-On was entitled
to the benefit of the statutory presumption that it was a holder in due course, that the checks were
supported by valuable consideration. Private respondent maker of the checks did not successfully
rebut these presumptions. The only evidence aliunde that private respondent offered was his own
self-serving uncorroborated testimony. He claimed that he had issued the checks to Travel -On as
payee to "accommodate" its General Manager who allegedly wished to show those checks to the
Board of Directors of Travel-On to "prove" the Travel-On's account receivable were somehow
"still good." It will be seen that this claim was in fact a claim that the checks were merely
simulated, that private respondent did not intend to bind himself thereon. Only evidence of the
clearest and most convincing kind will suffice for that purpose; no such evidence was submitted
by private respondent. The latter's explanation, was denied by Travel-On's General Manager; that
explanation in any case, appears merely contrived and quite hollow to us. Upon the other hand,
the accommodation" or assistance extended to Travel-On's passengers abroad as testified by
petitioner's General Manager involved, not the accommodation transactions recognized by the
NIL, but rather the circumvention of them existing foreign exchange regulations by passengers
booked by Travel-On, which incidentally involved receipt of full consideration by private
respondent. Thus, we believe and so hold that private respondent must be held liable on the six
(6) checks here involved. Those checks in themselves constituted evidence of indebtedness of
private respondent, evidence not successfully overturned or rebutted by private respondent.
5.CIVIL LAW; MORAL DAMAGES; AWARD THEREOF, NOT PROPER IN THE
ABSENCE OF BAD FAITH. The award of moral damages to private respondent must be set
aside, for the reason that petitioner's application for the writ of attachment rested on sufficient
basis and no bad faith was shown on the part of Travel-On. If anyone was in bad faith, it was
private respondent who issued bad checks and then pretended to have "accommodated"
petitioner's General Manager by assisting her in a supposed scheme to deceive petitioner's Board
of Directors and to misrepresent Travel-On's financial condition.
Sections. 52-59